Beggar thy neighbour policies don’t benefit consumers

Bloomberg’s Business Week piece http://www.businessweek.com/news/2010-02-09/brazil-to-sanction-u-s-on-goods-intellectual-rights-update1-.html
reports:

· The WTO ruled in August that Brazil has the right to impose $294.7 million annually in sanctions against the US because of subsidies paid to American cotton farmers, the second highest amount ever permitted by the Geneva-based trade arbiter.

· Brazil’s government will take a decision this month on which of 222 eligible products it will impose the sanctions, Celio Porto, an agricultural ministry trade official said in an interview.

· The list of potential targets includes agricultural and textile products as well as US exports such as electronics, cosmetics, ketchup, cars, chewing gum, medical equipment and pharmaceuticals.

Of course with the US government subsidising the narrow special interest group with taxpayer money, it is making the vast majority of Americans worse-off – only cotton farmers benefit. Moreover, it is effectively providing foreign aid to the foreign nationals purchasing the cotton.

If Brazil chooses to impose sanctions in retaliation, Brazilians will be worse off and it will be forced to rely on its own inefficient producers or import these goods and services from less efficient producers elsewhere. The result? Brazilians will have less disposable income to use for myriad alternatives – not least savings, which drive investment.

Both nations would do well to remember that free trade is a positive sum game – both sides win.

Author: Jasson Urbach is an economist at the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Policy Bulletin, 23 February 2010