Over the last decades, China has provided massive direct government subsidies in many key export industries. In addition, it has implemented a number of policies that block U.S. ﬁrms from market access. For years the Chinese government promised there would be a gradual opening of the Chinese market to foreign companies. Discuss the extent to which these protectionist policies are justiﬁed. What are potential problems if global economic welfare is taken into account?
Different people will clearly have different opinions on the first part of this question. The Chinese government thinks the measures are justified but economists generally would not think so. The Chinese government would say the measures are justified to strengthen their domestic economy and to maintain public faith in the rule of the communist party.
Economists, by contrast, would say that the potential problems (both for China and for the whole world) are greater than the supposed benefits. They would say that protectionist measures increase costs for Chinese consumers and reduce the quality of the goods and services that can be bought in China. They would also say that these protectionist measures are bad for the world economy because they lead to lower levels of production and consumption worldwide. If China would open its markets, all countries could make things in which they had a comparative advantage and could trade those things with one another. This would allow each country (including China) to concentrate on the things they make best and, thereby, to make more goods and services than they previously could. By engaging in protectionism, China prevents this from happening and lowers global production and consumption.