Subsidies In One Place Don’t Justify Tariffs in Another
Subsidies In One Place Don’t Justify Tariffs in Another by Lee Friday – Mises
Quebec Premier Philippe Couillard told reporters “Quebec has been attacked. And Quebec will resist. And Quebec will unite. . . .”
This sounds serious. I always thought Canada’s deference to its southern neighbour would preclude a confrontation with the almighty U.S. military. Couillard continued “All together, we will protect our workers.” Okay, now we can relax. As they appeal for public support for their interventionist policies, politicians often resort to hyperbole. I should have known.
The action which Couillard refers to as an “attack” turns out to be an American tariff on the C Series jet produced by Bombardier, a Quebec-based manufacturer of planes and trains. The intent to impose a 220% tariff was announced on September 26th, “after rival Boeing Co accused Canada of unfairly subsidizing the aircraft, a move likely to strain trade relations between the neighbours.” On October 6th, the U.S. Commerce Department proposed to increase the tariff to nearly 300%.
The Evil of Government Subsidies
As I have written previously, Bombardier has been the recipient of substantial government aid over the years. Politicians and bureaucrats constantly assure us that when the government provides financial aid to struggling companies, this actually promotes economic prosperity because jobs are ‘saved.’ Nonsense. Unprofitable firms must be allowed to die. It is not the government’s responsibility to preserve jobs in any particular sector. Consumers will make these decisions.
When a company is losing money, this means it is inefficient — customers are unwilling to purchase a sufficient quantity of its products to allow it to be profitable. Environmentalists, take note — losses are the market’s way of telling companies they are wasting resources! Consumers are saying they do not approve of the way the company has refashioned the resources it is using. In other words, the ‘final product’ is worth less than the sum of its parts. Human labour and other resources — wasted!
The inefficiency of Bombardier is further reflected in its inability to attract sufficient investment from the private sector. When the government bails out a loser, it overrides the decisions of consumers and private investors, thereby preventing the reallocation of these resources into lines of production (other jobs) which are more likely to satisfy consumer preferences. Thus, the division of labour is suppressed, and we get a dose of economic regression, not economic growth.