At the post, IT BEGINS: Trump Launches His Asinine Protectionist Trade Policy With Some Mega Tariffs, in the comment section Paul Hansen asks:
What is the Austrian perspective about the domestic companies that are forced out of business by competing against international companies that are subsidized by their own governments? I understand that the US consumer benefits with lower prices, but if this is done on a wide enough scale, wouldn't the resulting unemployment be a problem?Here's the thing, any time goods come into a region at a cheaper price
it is a net benefit.
We live in a world of disequilibrium where all factors are never going to stay the same. To deny this is to deny reality.
If cheap imports put a domestic firm out of business, it means that there is a shift in the economy from the time period when the domestic business was launched. That is all.
It will result in a shift in the employees at that business to other work. Thus, we will end up with cheaper products because of foreign government subsidized imports and workers who are no longer bogged down producing that product so that they are now able to produce other goods and services.
It is really an impressive double whammy increase in the domestic economic pie.
The idea that "if this is done on a wide enough scale...the resulting unemployment [will] be a problem" ignores the fact that there are an unlimited number of potential jobs. To think that there are only a limited number of jobs in an economy is known as the Lump of Labor Fallacy.
Markets clear, including labor markets. I have said before and was really not being flip when I wrote:
I really do need 5 servants, a manservant to make me a Spahire tonic when I get home from work and to know when I want the TV turned on (like when the Knicks are playing) and to turn it on for me.That I don't have these laborers at my beck and call is for one reason, and one reason only, others are outbidding me for their services.
I need a beautician to keep me with a fresh manicure and pedicure and to keep my hair groomed and to shave me every morning followed by a hot towel massage on my face.
I need a maid who keeps the pace clean and puts the toothpaste on my toothbrush whenever I want to brush my teeth.
I need an errand boy, well, to run errands.
And I need a body man to hand me gum when I want it and carry my cash and credit cards.
Right now, I only have a maid who comes in once a week. This means that laborers have better alternatives than what I have to offer. (With government welfare programs a complicating factor, preventing some with an incentive not to work.)
To think that somehow cheaper goods coming into a country will result in unemployment is another example of what I call looking at the specific and failing to consider the general.
To look at the specific here is to look at the worker who has lost his job because of the subsidized imports but it fails to take into consideration the general, that is, that markets clear and unless wages are at zero, there are jobs available.
Further, because this is a double economic whammy of cheaper goods via imports and workers freed up for the production of other goods and services, the increase in the economic pie becomes quite impressive.
And the greater the economic pie, the more goods and services are available at cheaper prices.
What we really should be doing, if foreign governments are dumb enough to subsidize our purchase of products from their countries, at lower prices, is to call for more of it.
I'd like to see another 20 grand knocked off the price of BMWs, I'd like to see 200 bucks knocked off the price of the Bruno Magli Men's WES Oxford and 50 grand knocked off a high quality Antwerp cut diamond.
Yes, you idiot foreign leaders, subsidize more! I am a very ready buyer if you make prices much more reasonable.