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China’s subsidies are unfair and harm Americans, right? – Publications – AEI

Summary:
AEI China’s subsidies are unfair and harm Americans, right? Well, No. Most people thinks that is true. But not so fast. That’s actually backwards. In a response to one of his Cafe Hayek readers, Don Boudreaux explains that China’s subsidies actually benefit Americans and hurt the Chinese, not the other way around. To make his case Don consider two scenarios: Scenario 1: A private Chinese citizen invents an amazing device that doubles overnight the output of all manufacturing workers whose employers possess this device. She produces this device exclusively with private funds and sells it profitably across the globe, including to businesses in America. As a result, millions of American manufacturing workers lose their particular jobs. Scenario 2: Beijing subsidizes the invention, production,

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AEI
China’s subsidies are unfair and harm Americans, right?

Well, No. Most people thinks that is true. But not so fast. That’s actually backwards.

In a response to one of his Cafe Hayek readers, Don Boudreaux explains that China’s subsidies actually benefit Americans and hurt the Chinese, not the other way around.

To make his case Don consider two scenarios:

Scenario 1: A private Chinese citizen invents an amazing device that doubles overnight the output of all manufacturing workers whose employers possess this device. She produces this device exclusively with private funds and sells it profitably across the globe, including to businesses in America. As a result, millions of American manufacturing workers lose their particular jobs.

Scenario 2: Beijing subsidizes the invention, production, and export of an amazing device that doubles overnight the output of all manufacturing workers whose employers possess this device. Among the buyers of this device are businesses in America. As a result, millions of American manufacturing workers lose their particular jobs.

Q: Do you see any economic differences separating Scenario 2 from Scenario 1 that are relevant for Americans? I don’t.

The consequences for Americans in Scenario 2 are identical to those in Scenario 1. Yet the same protectionists – and they are many – who grant that in Scenario 1 we Americans enjoy net benefits, insist that in Scenario 2 we Americans suffer such insufferable net harm that Uncle Sam must punitively tax our commerce with the Chinese to protect us from this alleged menace to our prosperity.

Scenario 2 differs from Scenario 1 from the perspective only of the Chinese people. In Scenario 2 the Chinese people are taxed to subsidize the invention, production, and export of the amazing labor-saving device, while in Scenario 1 they are not so taxed. And so while I grant that the Chinese people have both an economic and an ethical basis for complaining about Beijing’s actions in Scenario 2, I cannot begin to see that Americans have any such basis for complaining. Can you?

MP: Nope, and I agree with Don and say that instead of complaining about China’s “unfair” subsidies, we Americans should thank the Chinese for their generous gift of foreign aid to Americans that results from their subsidies that lower the prices we pay in the US for subsidized Chinese goods. In the best of all possible worlds, China would produce goods and send them to America for free. In the next best possible world, China subsidies its producers and it send us goods at heavily discounted prices, raising our standard of living and making us better off through their generous gift of foreign aid to American consumers and businesses.

Thank You, China. Subsidize away.

China’s subsidies are unfair and harm Americans, right?
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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