Follow Up On US-Chinese Trade Dispute

In light of other news that dominates the air-waves at the moment, the growing antagonism between US-China trade relations gets a short shrift. The chart on the Financial Times page does a good job displaying the rapid rise in trade disputes between China and the US. When we compare this to the arguments the Left used when defending Obama's decision to slap tariffs on Chinese tires (which were basically that the right was overblowing the issue), we can empirically observe Obama's threat to trade relations between the two countries.

As the tire case was a big victory for the union heavy auto industry, Obama's decision to slap a 99% duty on Steel pipes was a massive gain for the union heavy Steel industry. I think it's quite clear what game Obama is playing and what groups he's willing to protect and serve.

I could write a long rant about what how Obama is a threat to free trade blah blah. But I think we've already gone down that route. What I think would be a bit more interesting is a discussion over the issue of "Dumping" that composes most of Obama's arguments against China (and generally constitutes the majority of our WTO conflict resolution cases) and whether or not it is necessarily bad.

Dumping can take a variety of forms, it can be an export subsidy that a country tags onto a good that plunges the price of the good when it is traded abroad (the justification being, that the reduced price will make it more viable compared to other producers). When exactly this subsidy is placed (either in the production of the good i.e. State artifically lowers the cost of making it, or just as the finished product is about ready to be shipped) doesn't matter so long as the subsidy artificially lowers the price of the good.

Obviously we have a guttural negative reaction to Dumping, but is it actually bad? I mean, when we look at it in the China --> US relationship (Chinese Dumping) the American consumer is the person who benefits. We get to buy goods that are cheaper than they would otherwise be. Chinese consumers actually lose because their taxes are compensating the lower price of the good (and thus, gov't spending creates good/services for the US rather than themselves) AND, because there is less of that good in China (since more Pipes are leaving China to go to America than there would otherwise be at normal market prices) the price of that good will be higher in China (less supply equals increased demand, increased price). So yeah, that's pretty cool if China wants to pay for a discount on our shopping trip while increasing their own.

The major media response (and what you're probably thinking right now) is that such prolonged practices will destroy American/foreign competition and then the Chinese will be able to dominate the supply side and increase their profits in the long run.

However, there's numerous problems with this argument. First off, the threat of being edged out of the market forces our firms and industries to develop new practices/innovation to improve their production of such goods and will actually, in the long run, make them more viable than the subsidy laden industries. Even if our firms shrink, the practices they develop will ensure that when the Dumping subsidies stop and the market price resurfaces (or if the Chinese try to demand higher prices because their competition is less), our firms will be able to produce the good cheaper than the Chinese. Theoretically, the subsides that the Chinese government gives to lower the price should be used for Research and Development to counter this scenario, but in authoritarian gov'ts, subsides frequently feed into an expanded system of graft and corruption that diminishes/negates their long term viability. Also, there's been numerous attempts at Dumping in the past and it is rarely effective at eliminating enough competition to be completely dominant.

Secondly, There's the issue of what Americans get to do with their expanded consumption horizons as we're able to get pipes cheaper than before, the savings from this aren't going to be stagnate but will chase other goods. Maybe cheaper pipes means we can make cheaper houses/buildings, thus leading to more construction contracts? Or maybe I decide to upgrade my computer with the new OSX Snow Leopard from my savings? The possible outcomes of having more pocket change is endless. What we actually have is not a net loss of jobs as the Dumped Good edges itself into the market, but a transition of jobs from one industry to others. why we don't recognize this is because it's easier for the one industry losing jobs to be vocal about their problems compared to the multitude of industries that have benefited. Thus, we think there's only a loss.

Thirdly, and this is the most important in my opinion, Dumping practices are difficult to define and frequently lead to abuse. Is a Chevy car that is exported abroad a dumped good? Because of the bailout it's tough to say what our state to firm relationship is with Chevy. What about the massive grants that the US gives to R&D of a variety of goods? Could this be dumping? I think a determined analyst could point their finger at some point of a good's production cycle and find some type of state intervention. Thus Anti-Dumping policies in the WTO lends itself to abuse, especially by anti-free market politicians. There's a fine line with this argument I know, when we look at the super-rivals of Boeing vs Airbus, state subsidies can have a huge impact on the outcome of the industry (since the industry is largely only made up of two firms), and maybe RTP can explore the topic more.