The economic isolationists win one

From today's Washington Post:

U.S. Puts Tariffs on Chinese Paper
More Actions Anticipated Over Subsidy System

SHANGHAI, April 2 -- Chinese industry and trade groups accused the Bush administration on Monday of a misguided and hypocritical approach to trade for its decision last week to slap steep tariffs on certain Chinese-made paper.

The United States contends the glossy paper is subsidized by the Chinese state. But China's Ministry of Commerce called the economic sanctions "unacceptable." Hua Min, head of the World Economy Research Institute at Fudan University in Shanghai, called the American stance "absurd," noting that the United States just a few years ago was found to be giving illegal tax rebates to companies such as Boeing and Microsoft.

In Washington, officials at the Commerce Department said they had no choice but to act on a petition filed by an aggrieved U.S. paper company whose sales have been undercut by cheap Chinese imports.

"The Chinese economy is replete with subsidies," Undersecretary of Commerce for International Trade Franklin L. Lavin said in an interview Monday. "It gives Chinese exporters an unfair advantage in the U.S. market, and we're determined to do what we can to unwind that advantage."

The decision to impose tariffs on one product -- high-gloss paper, used to print magazines and some books -- has sown anticipation that this is merely the first in a string of such cases, with the administration likely to follow with similar action against a range of Chinese industries, possibly including steel, textiles and plastics.

You might expect me, as a former economic advisor to President Bush, to defend these policy moves by the administration. If so, you'd be wrong.

Industrial subsidies are bad policy, but they are bad policy for the country paying for the subsidy. The country buying the subsidized goods benefits from cheaper imports. Think of these subsidies as the opposite of OPEC--another country conspires to sell goods below competitive prices. For the same reason that high prices from a cartel hurt us, low prices from a subsidy help us. It is common sense that when you buy something, you would rather pay less than more for it. That is as true for a nation as it is for a household.

The bottom line: The Chinese taxpayers should be complaining about these subsidies, not the American government.