April 26, 2016

How to Respond to 'Unfair' Trade

Donald J. Boudreaux

Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
Summary

Even if we grant that Beijing subsidizes Chinese steel unfairly, there are no grounds for Uncle Sam to respond by protecting American producers at the expense of American consumers.

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Protectionists today rarely admit to being protectionists. Most of them proclaim their allegiance to free trade but quickly follow up with a “but” — as in “but it must be fair trade.”

“Fair trade” is code for “unfree trade.”

Of course, no one endorses trade that is genuinely unfair. The crucial questions, however, are just what is unfair trade and what is the best way to deal with it. Protectionists in America want you to think that any imports whose producers receive any assistance at all from foreign governments are unfair. They want you also to uncritically accept their assumption that the best way to deal with unfair trade is for Uncle Sam to raise tariffs — that is, taxes — on American consumers.

Never mind the hypocrisy at work when Uncle Sam — itself a major subsidizer of many U.S. exporters, such as Boeing and Dow Chemical — uses charges of “unfair trade” as an excuse to punitively tax Americans who purchase imports.

For the sake of argument, let's assume that, say, the Chinese government subsidizes Chinese steel producers so heavily that imported steel from China causes American steel producers to scale back their operations. These subsidies are indeed unfair. But they are unfair not to Americans; they are unfair only to Chinese taxpayers from whom resources are extracted to fund these subsidies.

American steel producers and workers scream “No! These subsidies are unfair to us because they cause us to lose market share and jobs.” But no producer has any right to the patronage of any consumers. Consumers do not exist to promote the interests of producers; producers exist to promote the interests of consumers.

Yet when Uncle Sam raises tariffs on Chinese steel on the grounds that Beijing subsidizes that steel, it helps American steel producers by inflicting harm on American steel consumers without doing anything to help the actual victims of the subsidies: Chinese taxpayers.

Even if we grant that Beijing subsidizes Chinese steel unfairly, there are no grounds for Uncle Sam to respond by protecting American producers at the expense of American consumers.

So who should respond to these unfair subsidies? One plausible answer is “no one other than the Chinese themselves.” When Beijing subsidizes steel, it actually helps rather than harms Americans. Those subsidies are a transfer of wealth from Chinese taxpayers to American consumers — a transfer that makes Americans as a whole richer.

No one person's refusal to buy Chinese steel will cause Beijing to end its subsidizing ways. But if enough Americans really do feel strongly that these subsidies are unfair, they can and should voluntarily put their own money where their mouths are. If enough American consumers do so, their actions will be no less likely than are Uncle Sam's higher tariffs to help save Chinese taxpayers from Beijing's unfair policies.

And, being voluntary, these actions by American consumers will also be much more fair than mandated higher tariffs.