Tuesday, June 16, 2009

Free Trade 13: Benefits of Dumping

I read 2 news stories today on trade protectionism. The first is about pork protectionism as a result of A(H1N1) global scare, and the second is the proposed anti-dumping measures to be imposed by India on cheap Chinese exports. While the former may be understandable as it is a new phenomenon, the latter is simply typical protectionism.

The issue of “dumping” of cheap imports. Even if "dumping" is deliberate and partly subsidized by the government of the exporting country (X), it is still beneficial to the consumers of the importing country (M). The citizens of the X are being taxed to subsidize the consumers of M. Wouldn't the people of M be happy?

Households from M will save, say 20 percent cheaper, from buying products of X. Consumers from M will not burn or throw away the money they save, They will use such savings to purchase additional goods and services which before they would buy only in small quantities or none at all. Or they will use such savings for some investments, say to start a micro or small enterprise. This increase in consumption and/or investments by citizens of M would mean greater welfare and/or greater productive capacity, that can later translate to a more competitive economy.

So M need not complain to the WTO, or impose anti-dumping duty or tax which will make the cheap imported goods become expensive, which will erase potential savings by their citizens, which will erase potential increase in domestic consumption and/or investments, which will result in overall decline in social and economic welfare.

This further proves the beauty of unilateral trade liberalization. Allow all countries to "dump' their excess output and government-subsidized exports to your market, so long as there are no health or security hazards to your people (ie, no expired or poisonous food, etc.). There are two clear and direct benefits for this.

First, local consumers of M will have lots of choices (goods and services) to buy, lots of savings, or lots of new investments to put their extra savings.

Second, tourism-related sectors of M will expand. Millions of tourists and visitors from many countries around the world will flock to the country, knowing that there are so many commodities to buy at cheap and affordable prices because of “dumping” and zero import tariff policy. These tourists buy, shop, eat, stay in hotels, visit tourism spots, etc. Then they go back to their country carrying plenty of huge shopping bags. It's like M imported in huge containers transported by long trucks, and it exported in plenty of shopping bags carried by tourists back to their country.

These benefits are not hypothetical. There is at least one clear and concrete example: Hong Kong.

Nothing beats free trade, free market, free choice.

Below are the 2 news stories that I mentioned:

(1) http://www.bworldonline.com/BW061609/content.php?id=005
BusinessWorld, June 16, 2009

WTO protectionist report to feature swine flu bans

GENEVA — Bans on pork imports after the swine flu outbreak will be highlighted in the World Trade Organization’s (WTO) report on protectionism due in the coming weeks, trade sources last week said.

But overall the report will not show any dramatic upsurge in protectionism as the economic crisis grinds on, rather a "steady drip" of trade measures, one source said.

The WTO will be putting the finishing touches to its regular trade measures report ahead of the June 23-24 ministerial meeting of the Organization for Economic Cooperation and Development (OECD) in Paris, the sources said...

(2) http://www.freedomtotrade.org/news/indian-industry-vs-indian-consumers

India urged to act on cheap Chinese imports

By Amy Kazmin in New Delhi

Published: June 15 2009 03:00

India's small- and medium-sized enterprises have warned that they are suffering because of cheap imports from China.

They have urged New Delhi to accelerate anti-dumping investigations and impose tougher safety and quality checks on Chinese products.
The appeal for greater government protection comes at a time of rising tensions between New Delhi and Beijing about trade after a high-profile dispute over an Indian ban on Chinese-made toys.

India's Federation of Chambers of Commerce and Industry said yesterday that a survey of 110 small- and medium-sized manufacturers found that about two-thirds had suffered a serious erosion of their Indian market share over the past year because of cheaper Chinese products.

In its statement, FICCI said the Chinese imports were between 10 per cent and 70 per cent cheaper than comparable Indian products, a price differential that it said was "huge and difficult to explain". Amit Mitra, the FICCI's secretary-general, said Indian industries were being hurt by "typical Chinese predatory pricing" intended to drive rivals out of business so that Chinese companies could capture the market - and then raise prices to more normal levels.

Last May 26, 2009, I wrote this:

US Realization of the Dangers of Protectionism

I read the article below in FT today. Many American companies feel the pressure and backlash of counter-protectioni st measures by Canadian companies and government.

Meanwhile, I also read that China and Brazil have come to an agreement that they will use their respective currencies, renminbi and rial -- not US$ -- to pay for imports from each other.

Two ugly developments in the US -- ever-rising budget deficit and public debt, and trade protectionism -- help sour the appetite and demand for US$ in some countries. This will contribute to the sinking of the US$, which is actually slowly happening now. For instance, even the not-so-prestigious Philippine peso has been appreciating against the US$ lately.

I hope the US government will realize the folly of protectionism quickly, and abandon those "buy American" provisions and related policies.


Obama urged to curb Buy American measures

By Sarah O’Connor in Washington

Published: May 25 2009 20:06

The Obama administration faces mounting pressure to wind back Buy American measures passed by Congress this year amid growing concerns that they hurt some US workers they were designed to help.

The measures, which were in the $787bn US stimulus bill, require any project funded with stimulus money to use only US-made steel, iron and manufactured goods.

An outcry from the US’s trading partners saw the bill amended at the last minute as the White House urged that it not contravene existing trade agreements. Some businesses and officials say that amendment is proving virtually meaningless in practice.

More than a third of the stimulus money is being disbursed by states and local authorities, which are not party to free trade accords such as the North American Free Trade Agreement.

Canadian manufacturers complain that their goods are being shut out of contracts funded by the US stimulus even though Canada is party to NAFTA, which prohibits discrimination.

In retaliation, some Canadian municipalities have passed “Do Not Buy American” resolutions to shut out US-made goods. That has rattled some exporters. Texas manufacturer JCM Industries told the Financial Times that it might have to lay off workers if the situation worsened.

Pennsylvania- based steel company Duferco Farrell has warned it might lay off 600 workers after its biggest client said it would cancel orders because Duferco’s goods, some of which have to be partly produced abroad, were not Buy American compliant.

Canada’s government fears the problems could worsen, according to Tony Clement, the country’s industry minister. He warned that protectionism was seeping into the US’s long-term laws after the House of Representatives added Buy American provisions to two ordinary non-stimulus bills, a move he called “a distressing trend”....

See also:
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008

Free Trade 10: More on Unilateral Trade Liberalization, July 15, 2008
Free Trade 11: Global Petition, Keynes, March 19, 2009
Free Trade 12: Trade and World Peace, April 28, 2009

No comments: