Comment by conanbatt | Hacker News Reader

Comment by conanbatt | Hacker News Reader

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> This is really simple if you stop and look at the individual pieces: if you have free trade, but your trading partner uses the money they get from taxation to subsidize weak parts of their economy that you would normally have an advantage in, then you're going to lose that advantage when businesses in that area go bankrupt as they can no longer compete. Your trading partner can then move the subsidy to other businesses and repeat the process until they have destroyed all of your local business

I think this is one of those fearful arguments that doesnt really represent reality.

In argentina we export a lot to Brasil, and one thing we export is cars. Lets suppose that Brasil takes a protective policy and then uses heavy subsidizing to make car factories and then outcompete argentinian automotors, lets say the subsidy is so large that cars in Brazil cost half in every single aspect, in every niche and ever smaller car element(something impossible to cover in reality).

Yes, the car industry in argentina is toast, but now argentinians can get cars at half the price thanks to the generosity of the brazilian taxpayer. The argentinians have become enormously wealthier by such a measure at large.

Not only that but now argentinians as a whole have half a car extra in money to spend in other services and products, which means that a bunch of other industries will grow! Argentinians would become much richer.

Lets say that Brasil loved that result (i dont know why, because they hemorraged money like hell) and repeat that with every single product argentina builds. IF every single product in argentina ,imported from brasil costed half, and it effectly replaces everything, it really means that Brasil is now giving argentina half the PBI of Argentina in subsidy. That is so unreasonable that it will never happen.

Theres another thought around this topic: that you can destroy an industry, and then increase your profits later on as a sort of monopoly power to recoupe the initial investment. IT would never happen that way: the moment prices rise up, investors would flock again to the argentinian automotive industry and take those profits away.

What is clear is that brasil would be using its tax payers to give products to other countries!

>Yes, the car industry in argentina is toast, but now argentinians can get cars at half the price thanks to the generosity of the brazilian taxpayer. The argentinians have become enormously wealthier by such a measure at large.

Temporarily they do. Once the Argentinian car industry is gone, however, they can safely jack up prices again knowing that bringing it back will be very, very hard. That money will leak out of the country, driving down the Argentine peso, making Argentines poorer overall.

>Theres another thought around this topic: that you can destroy an industry, and then increase your profits later on as a sort of monopoly power to recoupe the initial investment. IT would never happen that way: the moment prices rise up, investors would flock again to the argentinian automotive industry and take those profits away.

The flagrant gaping hole in your argument is the presumption that you can build a car industry overnight. It takes decades and requires a lot of investment. The Japanese government threw a not insignificant portion of its GDP at its car industry before it even started showing promise.

Do you have real life examples of a country subsidizing an export to a country damaging is industry, and then jacking up the prices and get that so called monopoly profits?

I dont think you will find a subsidy that ended up being a net monetary gain for the tax payers, let alone a good investment option.

Pretty much all of Africa, unfortunately. Dumping from both the west and the far east has destroyed large parts of the economy.

To add as well, the free subsidy is definitely a short term thing. If you look at it as an 'education fee' for the subsidized business, it's not really that unexpected. Eg, a student may be paid nothing while he works as an intern and learns skills, but he does it anyway because once he has done so he can earn far more for the rest of his life. Same with subsides.

Also another way to look at it: the people buying the cars for less could probably already afford the cars. So instead of that money going to new workers in your own country, they're going to those in other countries. So the rich benefit in paying cheaper prices, but the poor who needed that income more than they needed a cheaper car suffer. In properly working free trade, this would be a two way street of comparative advantage, but because of numerous 'cheats' it's no longer a two way street.

US subsidized grain flooded into Mexico after NAFTA driving farmers out of business. Later the price of grain skyrocketed.

Grain has international prices, there are lots of grain producing countries. I doubt it Mexico farming less grain affects prices.

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