TARIFF WARS

THE SCOURGE OF TARIFFS

Tariffs are bad instruments. Tariff are imposed upon the consumers, who have to pay more for the goods, because their own government is increasing the cost, artificially, in order to make it less attractive price wise.

We can recognize this, but then again, some countries have tariffs and punish their citizens without criticism.

PROTECTING NATIONAL PRODUCTION

Tariff Wars are enacted to protect national production. This sounds good, but in reality it does not protect the nation. It only protect those in possession of the means of production. Very Marxist and one of the triggers on the newspeople in America.

We all abhor protecting those who are owners of the means of production, but these are the ones that offer jobs within the country. One can detest the capitalist, but capitalists are those who offer jobs in the country.

During the 1980s to the 2020s, all academia praised “the new technical revolution”, where manufacturing was not the prime mover of the economy, with services being the new driver of the economy.

This has the same defects of the other theories. Manufacturing is still an important source of jobs everywhere in the world. Moreover, farming and mining are still the only way to produce food and get the raw materials needed.

The export of manufacturing jobs made other nations wealthy and let the former industrial powerhouses less stable.

Remember Germany is still a manufacturing powerhouse, while their academics preach the contrary to everyone else. France still have a strong agricultural base – based on subsidies.

THE CASE OF CHINESE DUMPING

In the case of the Communist China dumping, it is very clear that the prices are wrong.

The solar panel industry in the world was wiped out and today 80% of these panels are produced in China. The Chinese cornered the market and controls it with monopolistic power. The leftist push for greener energy have pushed the world to be dependent on Communist China production of solar panels.

This is a fact and not a hypothesis anymore. One can see the price of the Chinese cars being sold in America as below the cost of the average cost of replacement battery pack. This is clearly a movement of the Chinese Communist Party to move out competition from national producers in order to make Communist China the main producer of Electric Vehicles.

The production of EV cars require volume and China internal demand for EVs is not enough for their production and moreover, there is a large consolidation movement of their own EVs producers. The CCP has selected EV production as their petty project for the Five Year Plan and moved policies and capital on this industry.

But technology has advanced slower than predicted and we still rely on lithium batteries for the cars. Moreover, there has been a shortage of electricity in many consumer markets like California, which makes EVs less reliable as means of transportation. Other countries also do not have the electric grid to power these EVs, for the fast charging units require upgrade of the electrical installations.

Several hundred billion dollars of equity was wiped out when WM Motors, HiPhi, Evergrande EV and 52 thousand other companies related to EV market has bankrupted. Those who bought EV cars from these companies are left in the lurch.

These company failed due to normal market competition and due to the presence of 500 main brands, some of them have produced less than twenty units before closing their plants, wiping out billions of dollars in investment.

The cut throat competition and selective subsidies have made 300 brands unprofitable already and this is the future of non Communist China brands if dumping is not curbed.

There is a glut of EVs in China. The disaster in the real state market has destroyed the savings of millions of Chines people and they do not have cash flow to buy the EVs in the market. The 200 brands that are still in business are competing for a diminishing market. Their solution for the excess production is to cut losses and export at firesale prices to America and Europe. This will solve their excess inventory at the same time will destroy any local industry.

Europe is not so worried about this dumping, because their brands are in the upper bracket, and less likely to be substituted. No one will desist of a BMW i8 for a BYD. Moreover, Europe is not bothered to learn that the American industry is struggling, for that is a market that they hardly export.

Even if Europe is not too threatened, they also engaged in Tariff War against Communist China. The EU have imposed 100% tariffs on Chinese EV imports, reducing the allure of these cars.

America under Joe Biden has already imposed the same tariffs.

Those who complain about these tariffs must also complain that Communist China, having the lowest cost of production, still bars the importation of automobiles using tariffs and non tariffary blockages to protect their own industry.

Communist China is a powerhouse in manufacturing and can not claim it is a developing country anymore. Communist China is the second GDP in the world and must be treated accordingly.

DUMPING

Dumping is the practice of selling products at a price below the objective value of cost. This is forbidden by the WTO – World Trade Organization – but it takes forever for the WTO to pass an arbitration and when it does, it is always slanted towards the less economically privileged, but most powerful politically.

Dumping as an example is when some village bakery is owned by one individual and there are a couple of other bakeries in the area. The owner of the bakery decides to capture the other bakeries demand by offering more bread for the money paid. The costumers of the village flocks to this bakery to get more products for less money.

One of the other bakeries decide that this is unfair and they too decide to reduce the cost of bread, but fearing the lack of profits, partner with a wealthy individual. Now this bakery is selling at a price below cost. The others bakeries is also selling below cost.

For every bread sold, there is a loss. The more bread sold, the bigger the loss. In short time, there is no more circulating cash and the bakeries need more capital. The ones that can not raise capital bankrupt and the one with access to the wealthy individual can buy these bankrupt bakeries and raise the price again. But now there is only one bakery.

Dumping is the sale of products below cost. It is not selling products with a lower cost. The difference is important. Dumping is when the seller is forcing the price below cost.

Sometime ago, in the late XIXth century, the Sherman anti-trust Act, tried to curb the creation of monopolies and the exploitation of monopoly power on the market. The vision was to allow competition to foster and thus keep price at a demand market level, not supply market level.

WHAT IS NOT DUMPING

Countries with advantages can sell their wares at lower price, but above their cost.

David Ricardo, the classical economist from the XVIIIth century, has explained that certain countries have Competitive Advantages over others.

It is natural for Portugal to produce wines, due to their geographical position and it is natural for Cumbria to produce steel, for they have plenty of coal and iron ore. The same happening in Pittsburg, USA. Guatemala can produce lot’s of bananas taking advantage of their fertile soil and climate. Brazil became an exporter of meat after opening the frontiers in their mid-western plains.

It is not dumping when you have access to resources that makes your product cheaper.

Have noticed the price of salmon? It has dropped considerably after Chile began farming salmon using their availability of water, technology and marketing skills. Other countries like the USA, Canada and Scotland have the same opportunity, but they do not engaged.

The Tariff Wars is an artifact to prevent dumping. The judgement if the price is above or below cost is tricky, because the producer engaging in dumping is most of times in foreign jurisdictions. The country that is complaining can only estimate the cost and get it wrong or right depends on unreliable data.

A Tariff War can protect the national industry from dumping for a while. It can foster a local industry and overcome the barrier of entry in industries.

This have served well in South Corea, Japan, China, Colombia, Brazil, Mexico, Spain and many other countries. South Corea is the best example, for now it is an open economy and prosperous society.

The sin of Tariff Wars is that they outlive their usefulness and is prone to corruption. Politicians may extend the Tariff Wars to protect their own constituency while burdening the whole country with higher prices.

There is also the crime of unscrupulous politicians and businessmen using tariffs to their own profit, but this is covered by the bylaws of the jurisdiction and punished with jail time.