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.If another country wants to make itself poorer by sending their wealth to us via export subsidies, Why should we complain? The real trick is to get them to do it forever!
Saturday, 8 October 2011
The political economy of protectionism
Donald J. Boudreaux has an article in the October 2011 issue of the journal, Economic Affairs in which he attempts to answer the question, Do Subsidies Justify Retaliatory Protectionism? The abstract reads,