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Assume that firms of country A and country B trade with each other. Now assume that the government of country B decides to subsidize the production of good X within its country for export to country A. In extreme cases, this is called "dumping". This imposes harmful effects upon country A by enabling the price of good X to fall, jeopardizing the financial integrity of producers of good X within country A. Would it be moral, according to Objectivism, for the government of country A to counter this export subsidization by imposing a tariff upon good X as exports from firms within country B if the size of the tariff equaled the discrepancy between the market price of good X from country B and the artificially reduced/subsidized price of good X, assuming that such a discrepancy could be determined? This countervailing tariff would create an equilibrium between the market price of good X and the subsidized price of good X, nullifying government B's protectionism. What if the export subsidization of country B was known, but the exactness of the price discrepancy was not?

asked Feb 08 '11 at 01:40

Michael%20Labeit's gravatar image

Michael Labeit

edited Feb 08 '11 at 02:41

Country B is impoverishing its own people overall and enriching the people of Country A overall. In effect, it is setting up a welfare system where the taxpayers of Country B pay for part of Country A's people's consumption. Country B is hurting some individuals in Country A alongside most individuals in Country B, true, but it is helping other individuals in Country A alongside the favored few in Country B.

(Feb 08 '11 at 11:08) Justice Justice's gravatar image

Any action that Country A might take will only hurt its own people. Country A should take no action except to argue based on facts for Country B to stop subsidizing its favored few and the Country A many at the expense of most of Country B and the unlucky few in Country A. If Country A were to act, such as to impose a countervailing tariff, it would be in the wrong.

(Feb 08 '11 at 11:08) Justice Justice's gravatar image

Are they justifiable? Absolutely not: tariffs are deeply immoral, and disastrously impractical.

Tariffs are deeply immoral because they constitute a clear violation of rights; proper governments are instituted to protect peoples' rights rather than systematically violate them. So, unsurprisingly, we see a corresponding spiral of ill effects from their use in practice: less freedom, fewer choices, and higher costs to customers; growing rent-seeking by politicians who are indifferent to citizens' liberties and the corresponding economic harms being done to them; companies shifting precious focus from improving production to merely mastering the predatory politics of pull when they see this new means to improving their market position; and international tensions aggravated by the "retributive" gamesmanship between governments. Even the potential of tariffs creates terrible conflicts of interest and a spiral of bad behavior, because just the possibility of getting a tariff to be instituted creates incentives for companies to lobby politicians for them (lest the companies miss out on any possible competitive "bonus" that would be enjoyed by their domestic competition which does business across borders).

I recall one economist explaining some of the sheer goofiness of "tariff wars" this way: Economic trade is like a two-way road, benefiting everyone with easy travel both ways. If someone (the other government) hampers the flow of traffic in one lane (by creating/raising a tariff on incoming goods), how does it improve the hampered travel situation to respond by hampering traffic going in the other direction, too?? A much better response is to simply point out to the other government and its citizens that they are only harming themselves.

As for "dumping" in particular: If some other government is economically stupid enough to essentially subsidize our consumers' computing prices by paying to "dump" memory chips on our market below cost, then there's not much for us to complain about: our consumers are receiving a benefit paid for by the taxpayers of the other country -- and by the hand of their own thuggish government! (And of course if such "dumping" threatens to make the product's price volatile by driving out our own domestic producers and allowing prices to be drastically raised, then that's precisely what the common, rights-respecting mechanisms of long term contracts and futures are wonderful for smoothing out. In his massive tome Capitalism, available for free reading online, economist George Reisman takes the analysis further, explaining at some length how trade protectionism is an unmitigated disaster in practice.)

answered Feb 08 '11 at 16:05

Greg%20Perkins's gravatar image

Greg Perkins ♦♦

edited Feb 08 '11 at 18:00

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Asked: Feb 08 '11 at 01:40

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Last updated: Feb 17 '11 at 09:06