Many fallacies infect the arguments of those who insist that sound economics requires that, when subsidies doled out by government X lower the prices of imports in country Y, the government of country Y should impose countervailing taxes on its citizens’ purchases of those subsidized foreign goods. I address some of these fallacies in this 2011 article in Economic Affairs. And Dwight Lee and I address a different yet major such fallacy here. (I say “major” because I believe this fallacy to be important, not because it is prominent. This fallacy remains largely ignored.)
Below the fold is another angle that occurred to me to highlight as I read this Wall Street Journal report on the growing reliance by Chinese firms on subsidies from the Chinese state. My remarks here are aimed chiefly at market-oriented economists who believe that foreign subsidies justify domestically imposed punitive taxes on consumers who buy subsidized imports.