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OT, Why the comment section is closed on the previous thread? I wanted to make a short comment there.

Presumably because Pete L didn't want to open them. His post, his call.

Nice article.

I don't buy the argument against retaliatory tariffs.

If the Chinese (or anyone else) are permitted to subsidize and dump then all industries in the home market are possibly under threat.

Certainly by dumping they are handing resources to the consumer in the home market. But they are also making every other investment artificially less certain.

You are supporting a divide-and-conquer tactic by which one country may destroy the economy of another. First, the foreign power subsidizes one industry and drives the competitors in the home market out of business. Then once that is done it redirects its energies on another market.

Why is this sort of interference to be opposed when a home government does it but not when a foreign government does it?

Current said: "You are supporting a divide-and-conquer tactic by which one country may destroy the economy of another. First, the foreign power subsidizes one industry and drives the competitors in the home market out of business. Then once that is done it redirects its energies on another market.

Why is this sort of interference to be opposed when a home government does it but not when a foreign government does it?"


There are two issues here:

(1) Is it possible for a company to "dump" or use "predatory pricing" to rid the market of competition, and then abuse the power afterward? And if so, should it be stopped by government?

(2) The Chinese government is using subsidies to aid the companies in doing (1), does this change the analysis?

As for (1) it is pretty well agreed the answer is "no" or "almost never," so the question becomes: does (2) matter?

Certainly subsidies do affect competition, they drive demand and misallocate resources and crowd out unsubsidized firms. However, the follow up is: does it fix things to subsidize the rest of the firms in the market?

So, some portion of the world market for steel is being subsidized - is the answer to subsidize another portion of the world market for steel? That doesn't seem right.

er - the proposal was not to subsidize the rest, it was to tax away the subsidy, wasn't it?

Well, then I suppose that the question is whether it is better to tax away the subsidy or to accept this "free lunch" from the Chinese--and if I were an American entrepreneur, without the tax I would likely go into a business that buys steel rather than a business that sells it. As long as the subsidy exists this makes sense - and the consumer benefits at the expense of the Chinese taxpayer, and there is some waste. When the subsidy ends, there will have to be a correction.

Taxing away the subsidy means that instead of the above scenario, we just have a transfer of resources from the Chinese taxpayer to the American government - and the highly likely possibility of a retaliatory move by China.

liberty: "(2) The Chinese government is using subsidies to aid the companies in doing (1), does this change the analysis?"

I think that this does make a difference because a government can call upon the advantages of being a government. It can tax, for example.

This argument is like the argument that a central bank is not really different from a commercial bank.

liberty: "if I were an American entrepreneur, without the tax I would likely go into a business that buys steel rather than a business that sells it."

Why no invest in China instead? After all the Chinese government may change their policy to subsidize steel consuming businesses later.

The question isn't as simple as Mark Perry makes it out to be.

It's rather like the argument from some that any amount of money fulfills the purpose of money. It's right in the long-run, but it ignores the important impact of the short-run on the longer run.

The good argument for opposing retaliatory tariff is like that for monopolies, it's public choice. We should accept that some monopolies do exist (as Mises wrote) but that allowing government to act against them just provokes rent seeking.

Why not invest in China instead?? Because I don't expect a policy of subsidization to work well. I agree though that the issue is complicated - national borders and foreign policy confuse things.

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