What is certainly true is that consumers benefit from the lower prices due to competition caused by free trade. European consumers have certainly benefited massively from cheaper goods made in China in recent years.
Of course there are losers as well as winners in this process. Many of those who made goods now supplied by the Chinese have lost their jobs and some firms have closed down. The knowledge that these resources are now released to be used in more profitable areas of the EU economy is of little consolation to the unemployed.
Governments are not good at practising what they preach. While a government claims to support free trade they are nervous about the votes of those adversely affected in the declining industries. They act to protect them and slow the transition, or even stop it.
One way of defying free trade is to claim a competitor is 'dumping' goods on the market. That technically means they are selling the goods at a price below the cost of production. The motives for a country doing this would be to raise domestic employment or to destroy the industry of another country in order to then monopolise that market.
The EU has just announced a tax (called a tariff or duty) on Chinese ceramics. Around half the cups, plates etc sold in the UK are made in China. The duty can be as much as 58.8%!
The EU is allowed to do this as an interim measure while the matter is investigated. The World Trade Organisation (WTO) can intervene but that takes a couple of years. Sadly the EU is quick to suspect dumping, usually due to complaints from EU firms and it is rarely true. The Chinese, in this case, are simply cheaper.
The attached article reveals a surprising number of cases where the EU has acted to restrict trade. In this case there seems to be more opposition that support for the move within the EU itself.
Personally I would agree with any economist that says that free trade is the best thing for all and 'fairness' is just an excuse for the countries whose economies are lagging behind. Free trade is beneficial to all because it promotes efficiency. It makes companies and their workers want to work hard so that they can keep up with other competitors. If they produce their goods and services efficiently enough, then this lowers costs and raises demand. It's an incentive for both firms and workers because the firms don't want to go out of business and the workers don't want to loose their jobs. In the end firms, laborers and consumers are happy - if they can keep up with the other domestic and international firms. I also think that this new tariff is ludicrous. China is the world's largest manufacturing country and it accounts for 1/5th of global manufacturing, but this didn't happen accidentally. One of the reasons being the skilled workforce (as well as many others). In my opinion, countries in the EU need to be taking notes rather than complaining about how 'unfair' it is, accusing them of dumping and taxing the goods they import here. If China make the goods, then they should be able to sell them at whatever price they want. It's not their fault that everyone else can't keep up.
ReplyDeleteCristyn Nartey: There is nothing wrong in trying to protect the interest of your own country's products. However, if this is the case, then consumers should be willing to pay more for homemade goods if they turn to be considerably more expensive. Even if consumers are willing to pay more, the firms may not be up to the task of increasing output quickly enough - however much they may try to convince the government that they are.
ReplyDeleteI think that 'dumping goods' on the market so to say is a perfectly reasonable choice to be made, in the best interest of the country's economy and certain industrys, if Britain were 'dumping' one of our main exports for example armaments, this would lead to an increase in employment , however decreasing profits yet in the long run once the market is monopolised they can set the price leading to greater advantages.
ReplyDeleteThere seem to be many issues here, so there is no wonder that the government is having such great difficulty in an attempt to find a compromise, where everyone is equally benefited.Obviously it can't be allowed to simply ignore dumping claims. To let a firm monopolize an industry can have huge negative effects on a market. Another issue would be that the firms making these claims would feel demoralized and belittled if the government did not fully investigate the claims.
ReplyDeleteThere is also the hardship of achieving a satisfactory balance of payments. Currently there is a battle between the price of goods and the levels of underemployment. By increasing the rate of tax of tax on goods imported the consumers will have to spend more on goods, but it allows for firms in the UK to continue running. Currently unemployment is one of the largest problems, so the government must do what it can to prevent even further job losses.
Governments are doing what they can to benefit most people in their country. It may seem unfair, but it is an attempt at compromise to benefit the most people possible.