Should the US Respond to “Unfair” Trade Practices?

By Jeffrey Miron of Cato. Excerpt:

"But some countries do subsidize particular industries, which allows them to sell at lower prices relative to US producers. India provides favorable loans and tax breaks to its sugar industry, while the EU’s Common Agricultural Policy offers direct payments and market interventions to its farmers.

Is that a good reason for the US to impose tariffs on these countries?

No. Subsidies for particular industries harm the countries that adopt them by distorting the allocation of productive activity and forcing residents to pay higher taxes. But such policies benefit the United States overall: while some workers see less demand for their services, the US purchasers of the subsidized products face lower prices, and this stimulates demand, allowing for job creation instead of loss.

Historical evidence supports this: in the five years following the passage of NAFTA, which eliminated most tariffs and trade barriers between the United States, Mexico, and Canada, the unemployment rate fell to below 4 percent while the number of manufacturing jobs increased by half a million. Likewise, estimates from the International Trade Commission and the Peterson Institute suggest a modest positive impact on the labor market and the economy more broadly from the agreement."