Tuesday, April 25, 2017

It's A Very Good Thing For Us, We Need More of It: Understanding the Nature of Foreign Government Subsidized Imports

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.

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.)
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.

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.



  1. Some newcomers to Austrian economics might take this to mean that foreign subsidies are a "good thing". The foreign subsidies are paid for by taxes, and taxes cause a distortion. The citizens of the foreign country, robbed of their money, must forego other purchases, savings, and investment. As stated in the original post, the foreign country is "bazookaing its own people".

  2. Thanks for your time in answering my question.

    1. "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*."

      He answered your question the same way I did: by pointing out your narrowmindedness.

  3. When foreign competition is subsidized by their governments we do benefit from cheaper stuff at foreign taxpayers' expense, but it comes at a long term price.

    The idea behind the foreign subsidy is the same method that Uber is using. To bankrupt competition and then be the only one standing. Uber being a service others could provide would still keep their prices under control but for manufactured goods that's something different.

    When the subsidized foreign product drives the domestic manufacturers out of business or forces them to relocate to their countries and captures the market share. With that the capital scrapped and the knowledge eventually disappears. Not everything is written down and what is often misses crucial details. A lot of what is written down is often simply destroyed when the companies fold.

    Enjoy the cheap stuff for now because the price will eventually return to its economically sustainable profitable level. However once that price level returns the domestic startup regulatory and capital costs will prevent rebuilding what was lost even if someone is willing to go through the trial and error of rediscovering the lost knowledge.

    1. Re: Jimmy Joe Meeker,

      --- Enjoy the cheap stuff for now because the price will eventually return to its economically sustainable profitable level. ---

      You could write that in a sign and carry it around, wearing nothong but a bathrobe and long hair while mumbling tirelessly, and maybe achieve a little more sympathy for you and your moralistic cliché. Maybe make a few bucks from that.

      People will always find bargains. And if they do it just to spite you, they will do so with more gusto.

  4. Why is the foreign govt subsidizing car manufacturing? Their expectation is a short term loss but a long term gain. Once US car production is decimated, it can never recover and the Chinese will cease their discounting.

    When there is another war, and the US has lost its ability to make ships, vehicles and steel, can the US wage a war?

    1. What do you mean "it can never recover"? Car plants get newly built or brought back online all the time.

    2. Re: Marmite,

      --- Once US car production is decimated, it can never recover and the Chinese will cease their discounting. ---

      The same exact ridiculous prediction and whinny complaint was made 30, 40 years ago about Japanese automotive industry and the expected demise of American auto makers. Instead, the American public enjoys much better cars, better quality and MORE CHOICES than during the times of the Chevy Nova and the Ford Pinto.