Tuesday, April 03, 2007

Should Government Favor Consumers Or Producers?

I would like to think that governments wouldn't interfere in transactions between businesses and consumers unless one party was committing fraud. But with the recent tariff on Chinese paper, it appears I am swimming upstream on this. Free trade policies benefit consumers by allowing them to pay lower prices for goods or services from foreign producers. Domestic producers sometimes respond by getting the government to help them get tax breaks, subsidies, or tariffs on foreign competitors.

Here is an interesting story from a Chinese perspective showing how tariffs are bad policy for the country placing the tariffs, as well as the target country. As complicated as international commerce has become, it makes no sense to try to outsmart the free market. In fact, when China subsidizes their products with domestic tax dollars or low wages, we might just thank Chinese taxpayers for the low prices and move on. Instead, we spread the pain to our consumers. Trying to create a "fair trade" situation has too many unintended consequences.