A foreign government doing something it should not cannot justify us doing something we should not. No.

Subsidies or tax preferences are tools with which the crony capitalism is built. They distort healthy economic forces and eventually sicken the entire economy. See USA since the "progressives" and "Teddy" R.
Actually Venezuelan collapse was relatively fast - less than a generation. It took communist Russia about 70 years, just short of three generations.
If you look at Western art since the beginning if the 20th century, you can tell that that civilization was getting sick.. No serious sign of turnaround yet. That is four generations plus and counting.
It takes long time to turn about a huge aircraft carrier.

“In my opinion, invention, courage and entrepreneurship move the world forward.” I agree.

Exportia can get the money for subsidies by exploiting other sectors of its economy, either through taxes, borrowing or money printing. It can sustain the scheme until its citizens wise up or its economy tanks (which could be a very long time, look at Venezuela).

Subsidy or no subsidy, innovation will eventually drive prices down. However, the artificially low price of widgets created by the subsidy might delay innovation because it gives producers less incentive to innovate in this particular market.

Exactly to the amount of the subsidy.

Actually it goes into Freetradia. ;). America certainly doesn't qualify for the name, sadly. We don't knew what Freetradia does with it.

For all we know they turn around and subsidize the companies from Freetradia, further escalating the problem. At any rate that doesn't change the calculus of whether they have the right to do so, and only under specific conditions not stipulated above would it affect the calculus of the question of effectiveness.

Not necessarily. It is entirely possible that could be taxing their citizens in other ways enough to cover it. It is also entirely possible that they can afford it long enough to drive the competition out of business. Once you have a monopoly or near enough to one you could conceivably raise prices.

The former possibility is something pursued by companies normally. It is a risk. It if you can sell lower enough for just long enough that your competitors go out of business you get a larger market share and presumptively better market control. If you fail you go out of business. But if you succeed you have a monopoly, or enough market share to stabilize.

On the gripping hand perhaps it induces Freetradia companies to shift operations to Exportia and Exportia taxes the income and has enough to cover it. Or some combination of the above.

The underlying economics don't change, just the actors and their powers and resources. If Exportia overextended long enough they would suffer indeed. If Freetradia countered with tariffs and Exportia escalated it becomes a wallet war of attrition.

Subsidizing any venture seems to make the price go down when in fact it goes up. Now the citizens of Exportia have to work longer days to pay more taxes to lower the price of a product which now costs an increase in labor to achieve these results. It is the fallacy that slave labor is free. Slave labor is always more expensive, you now have to hire others to watch the slaves to ensure they will work, you have to care for the slaves instead of them caring for themselves. Innovation is stymied because there is no reason to become more efficient when the manufacturer can just ask for more subsidies and the people in Freetradia improve their production driving down their costs and increasing the cost of Exportia. Slaves can never keep up.

But the tariff goes to our government and into a rathole. The net result is that the consumers of freetradia pay higher prices instead of enjoying the lower prices of exportia- and the money goes to the government of freeetradia to be wasted.

Our company is benefiting from Chinese exports by allowing us to sell our completed products cheaper to US customers. If the chinese copy and make the products we currently make, we will just have to make something else or meet the competition price.

Actually, wouldnt this threaten to bankrupt the country called exportia? so freetradia should enjoy the lower prices. The manufacturer in freetradia will have to pivot and make something different or lower its prices until exportia sees the folly of its ways.

Hello, CBJ,

I have an observation and a couple of questions for you.
The observation is that if Freetradia is a sovereign country, they can impose tariffs on anything they want at any time. Then it depends on consequences, local and global ones.
Where is Exportia getting the money to artificially decrease the real costs of producing those widgets and how long can it sustain the scheme?
After Freetradia imposes the tariffs, wouldn't you expect a Freetradian entrepreneur, after observing the market price increase, to start a widget manufacturing business, probably based on a more advanced technology and, as a consequence, being able to beat even the subsidized production costs in Exportia, with a chance of winning a share of the global market?
In my opinion, invention, courage and entrepreneurship move the world forward.

And a classic example of this is Professor Langley and the brothers Wilbur and Orville.

Professor Langley's highly subsidized contraption dives off the end of the pier into the Potomac, while the Wrights, the shoestring budget bicycle shop owners, achieve the first heavier than air flight at Kittyhawk.

As soon as you attempt to define a subsidy, you're in deep weeds. There are so many ways a government could subsidize an exporting company that it's impossible to protect against. What's really critical is for freetradia's executives to be the equivalent of Francisco and Hank, and outproduce any competitor out there. If you want an example, study Steve Jobs, who was innovating at such a pace that his competitors couldn't use subsidies for support, because he was making things obsolete so fast that a subsidy would be moot by the time it was imposed.

A real world example of a free trader beating the snot out of a subsidized competitor was Cornelius Vanderbilt's shipping line. Eschewing subsidies, Vanderbilt blew his competitor out of the water, eventually sending him to bankruptcy. The moral of the story is that a company that's subsidized is a company that's not worthy of existence. Another example is James Hill's Great Northern RR, which outshone his subsidized competitors. Just remember, when a government chooses to subsidize a company or industry, it's starving elsewhere in its economy. It's just cronyism, and we've seen over the last 7 years how that works out.

Hold it.
The subsidizing means higher taxes, so that Exportia manufacturers in the long run don't make more profit. But, because of unemployment, Freetradia buys less, driving Exportia into a depression, which allows Freelandia to resume manufacturing at a profit.
In the long run, government attempts to aid the free market inevitably does the opposite.

Hello CBJ,
This is a sticky wicket isn't it? I am all for fair and free trade, but any subsidies or regulations that give unfair advantage to domestic producers of any nation, will benefit consumers of other nations. This is all fine and dandy until the subsidies are such that they destroy the jobs of the consumers, wherever they are. No matter how cheap one makes a loaf of bread, if one has no job, and consequently no money at all, it matters not how cheap it is, unless it is free. It is equally true that Trump slapping a 30-35% tariff on Carrier products soon to be made in Mexico and shipped here will hurt American consumers and likely start a trade war.

After much research on this subject, I believe a nation losing its jobs to unfair trade practices should place no tariffs on basic commodities/ natural resources that have little value added and only place excise taxes on value added luxury imports from the offending nation commensurate with the level of unfair subsidy. Exchange rate manipulation can be a national subsidy. Fiat money makes that easier. We should be in the business of removing tariffs, yet not so foolish that we do nothing while foreign governments destroy our producers. The best way to stop the hemorrhage is not to add tariffs, but to remove all punitive taxation and regulation here, so companies stay and invest here. When governments get out of the way on both sides of the trade and let free markets reign everyone benefits.

For forty years we have seen trade deficits, lost manufacturing and shrinking or stagnant wages for middle class America. Now, correlation is not causation, but one must at least consider the probability, long term potential and impress on trading partners that obviously abuse the system, that ultimately destroying their market is not in their interest. At the same time we must convince our own government to stop subsidizing foreign competition with punitive burdens on domestic producers.

When subsidized a company has advantage over competitors and consumers may lose out on better, cheaper alternatives. When a company/product is penalized by regulation or taxation, consumers pay the bill and alternative (often expensive, shoddy) products are rewarded unfairly. Subsidies and tariffs are the same, in that they both unfairly benefit the chosen at the expense of everyone else. It does not matter if production is being rewarded (subsidized) or penalized (taxed). They are simply different sides of the same coin... a means to a cronies, or social engineer's end.

We are presently reliving Mercantilism, which was a large contributor to the impetus for our American Revolution. Sadly, some people never learn from history.

Respectfully,
O.A.

My answer says you are asking the wrong question, and I'm sticking with it.