THE UNFAIR COMPETITION ARGUMENT

A common argument is that free trade is desirable only if all countries play by the same rules. If firms in different countries are subject to different laws and regulations. then it is unfair (the argument goes) to expect the firms to compete in the international marketplace. For instance, suppose that the government of Neighbor land subsidizes its steel industry by giving steel companies large tax breaks. The Isolandian steel industry might argue that it should be protected from this foreign competition because Neighbor land is not competing fairly.Would it, in fact, hurt Isoland to buy steel from another country at a subsidized price? Certainly Isolandian steel producers would suffer, but Isolandian steel consumers would benefit from the low price The case for free trade is no different The gains of the consumers from buying at the low price would exceed the losses of the producers. Neighbor land’s subsidy to its steel industry may be a bad policy but it is the taxpayers of Neighbor land who bear the burden. Isoland can benefit from the opportunity to buy steel at a subsidized price.

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