October 7, 2011

Do Subsidies Justify Retaliatory Protectionism?

  • Donald J. Boudreaux

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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A theoretical case can be made to justify trade protectionism on the ground that foreign governments are subsidising export industries. This case is based on overall international welfare grounds. However, the country receiving the subsidised products benefits from the subsidies. Furthermore, imposing retaliatory protectionist measures risks encouraging rent-seeking behaviour. In practice, it is impossible to define exactly what behaviour does and does not amount to the grant of subsidies by the government of an exporting country.