China, thanks for your paper!

A few weeks ago, the EU began retaliating against subsidized Chinese imports. The first was to "catch" chalk paper. Czech MEP Jiří Havel defends the customs - that it is said to be a "fair" act supporting the market. I do not agree.

Made in China
Made in China

It has been some Friday since the EU introduced tariffs on the import of Chinese paper (and other goods) and what I discussed about it on Facebook with the Czech MEP Jiří Havel, a supporter of this duty. The duty is said to be the answer to Chinese subsidies to producers.

Jiří Havel wrote something about "fair" trade.

"Subsidies distort competition, so you have to make a sanction in the interests of fairness for your producers. This is a market principle that the US also applies. You just can't compete with a state sponsor. "

- Jiří Havel

Unfortunately, everything has its "buts". We Europeans and European producers are not losing any money on Chinese subsidies, but especially China and its people.

First, if China subsidizes its own paper production and exports, it's the same as if this money she gave directly to us. The paper trade is just an intermediary.

If you buy paper 1 CZK cheaper thanks to a Chinese subsidy, then it means that you received one crown from Chinese taxpayers. Isn't that nice?

If China subsidizes the production and export of some of its products, then above all subsidizes our cost of living. It's nothing to be devilful about. However, we are preparing for this by introducing customs duties.

But there is much more.

Imagine the absurd situation - China subsidizes its production and exports so much that it distributes its products here in Europe for free. Will you mind? Would such a Lenovo laptop bother you for free? Free school notebooks? Not me. What about you?

Manufacturer and dumping

Of course, we can say: 'What about European manufacturers? What about them? Will they fall in this unequal struggle, what about the employees ?! ”

But imagine again that China is giving away its laptops for free. Do you think it would cover the entire demand?

Production costs are also linked to production size. The more we produce, the more it costs us. The first laptops will be manufactured by those who are most suitable for this field. However, subsidies will bring other resources (people and capital) into the industry, which are no longer so suitable for the production of laptops. This increases production costs.

And do you think China is so rich enough to cover all of Europe's demand for notebooks?

Of course not. It is impossible. First, with a lower price, demand (or demand) may grow, so the cost of further production is still rising (China will not pay extra). Second - there may not be interest in Chinese laptops. If you give away laptops for free and make it the biggest thing, couldn't these machines be high quality? Thirdly, those who make laptops but fail could work without a subsidy in a field in which they could better specialize. That, too, is a loss to China.

So can China liquidate European manufacturers and dominate our market by handing out laptops for free?

Well, um, imagine that you go to work voluntarily for free. You do 100, 200 and then 300 hours. Will it destroy your competition, your competing suppliers - your colleagues? If not, why not? And who will it actually destroy?

Even if it managed to eliminate competition, it would still have to keep the price of laptops low. Why? Because High prices are the main reason to start producing something. The high prices of Chinese laptops are a signal to others that it is worth selling laptops. The competition will not be long in coming.

Import support export

But are tariffs on Chinese goods really protecting our producers, dealers and jobs?

We may save some jobs in the paper industry, but who will pay for it? Not China, but the consumer and the taxpayer - above all everyone else. We. I. You.

The exporter will be the first to be affected. If China imports something to us, it means that it sells something in our country and obtains euros and Czech crowns (and others) for it. What can he do with this money?

For example, a Chinese man can flood a stove at home with them. However, he is more likely to buy something sold in crowns or euros. That is, by selling Chinese paper in Europe, we make a profit, for example, the Czech (German) Škoda.

Clem is preparing for this. China will not get euros and crowns from the sale, so China will not be able to buy anything for this money (which it does not have). Are tariffs on Chinese goods fair to exporting producers?

However, it is not only export-oriented producers who run on euro-tariffs. They are also nation states. Their governments are offering their bonds - and that is what China can do buy for torn crowns and euros.

Just by the way - the government owes other exporters out of exports by borrowing.

We will thus "save" jobs in sectors exposed to import competition at the expense of jobs in export industries. Is this "fair"?

Customs and innovation

However, there is another group that is significantly damaged by customs: they are innovators, new entrepreneurs, potential competitors. The one who is harmed by tariffs against China is our future.

Resources are limited. If they were protected in the US in the 60s by high tariffs working places in production brooms, television and other fields, new jobs in IT fields would never be created - Microsoft and the jobs and capital it created would not come to light. Windows and Apple would not be created. God knows how Linux would be. God knows what Bill Gates or Steve Jobs would do. God knows if I'm looking at an LCD monitor today.

Customs thus hold scarce resources in certain sectors and make it impossible to release them for other activities.

Russel Roberts

This fact was well pointed out by Russel Roberts in his book "Trade for Wealth" - one part of which shows the United States in 2000 - but a slightly different United States than we know it. It's the US that in the 60s banned all imports - to protect jobs. Indeed, it is probably the most effective weapon against "unjust" Chinese subsidies.

What did such States look like? In 2000 as well as in 1962. No developed IT industry. No Intel or IBM. No Apple. No computer. No developed pharmaceutical industry. Still the year 1962. But the rest of the world was in 2000.

No big companies. Those who could work in new industries, such as IT, worked in broom and TV factories that were "rescued." Mark Zuckerberg might be extracting oil or sewing pants somewhere, instead of creating Facebook.

Any duty is thus a de facto redistribution of resources from future innovative entrepreneurs to current ones. For current entrepreneurs, this is protection both from competition from abroad and from future competition - potential.

We can't make everything ourselves. Only if we leave something to others can we specialize in what really works best for us. Imports do not destroy jobs, they only change their structure.

If China subsidizes our paper, thus subsidizing our new innovative entrepreneurs. We are preparing for that with customs. Is it "fair" to future entrepreneurs? It is "fair" to young people to force them to work in old industries (for example the production of brooms), and only because we will prevent the emergence of new industries (e.g. IT)?

Shop to wealth

If we look at it from China's point of view, we will see a threatening thing: just to be able to sell us paper, it gives up the possibility of new industries with higher "added value". It intentionally blocks limited resources in old industries and hampers innovation. China would be much richer, if it did not subsidize already existing production. Perhaps a better life for many Chinese will be discarded by their government just to keep their current jobs.

But unfortunately for the Chinese, China does as it does, leaving us with the opportunity to get rich when we don't have to deal with paper production, so we have time and other resources to invent new thingsthat will make our lives more pleasant. We are preparing for this opportunity.

As we have seen, it is free trade that is fair. If we adhere to the principles of free trade, we will get rich - whether others are adhering to them. Lead by example and show the wealth that can be gained through free trade, is the best argument for a free trade brings others. It is not protectionism, as Jiří Havel thinks.

China in this is not a pattern worth following. Unfortunately, EU retaliatory tariffs are economic protectionism taken as a copier from Chinese comrades. "Thank you," Mr. Havel, for supporting the weight loss of all of us. And really thank you, China, for your subsidized paper.

PS: Just because they do something somewhere doesn't mean we have to do it too.

0 comments

  1. @Stan, agree with everything you wrote.

    I studied international trade at university, including the theory of international trade, absolute and relative comparative advantages. Right after the first reading, it was clear to me that it is only a theory, unusable in practice, totally simplified, moreover totally unbalanced, which benefits the country that has greater competitive advantages, because it benefits many times more from mutual free trade, but this scissors between these countries are even more widespread. It is no coincidence that this theory was invented in the UK and promoted by "Western" economists, and was useful to states as a tool for colonization and imperialism. Almost none of the leading alternative economists of non-Western civilization support and approve of this theory.

    My main reservation to this theory is that it does not take into account all the costs of domestic unemployment. For me, it is simply better to produce a little less efficiently, but to give work to all the people in the EU who care about work. Even if I produce, for example, 10 percent less efficiently, it is much more efficient than letting people in the EU rot without work and borrowing for unemployment benefits and social benefits. The real cost per unemployed person is simply much greater and more substantial (crime, hopelessness, wasted life, bad interpersonal relationships) than the whole theory of international trade. It's about priorities. The theory of international trade is effective overall, for the sum of all countries. But not in the EU. In the long run, only the situation where large economic and monetary blocs, ie the USA, the EU, China, South America, Russia, the Arab countries, etc., will have a balanced balance of international trade, ie the given block in total will import roughly the same as export. I.e. Germany can still export more than it imports, but other EU countries will import more. China's artificially maintained mercantilism has been upsetting this global balance for a long time. EU countries do not have deficit deficits with Germany, but with China.

    To China - a country that includes significantly less negative externalities in production costs than the EU or the US (child labor, 16-hour shifts, factory dust and air pollution, water, air pollution in electricity production that enters the production of goods, cheap loans , stolen conventions, patents, and works, artificially low fixed, non-market exchange rate, etc.) cannot be considered a state that promotes a free market and a level playing field, so the EU should do its utmost to block imports from China in any way possible. cly or otherwise. That is, I am in favor of protecting the EU's internal market against unfair imports from China by all possible means. Total sanctions and 100% duty on everything made in China until China is willing to negotiate a settlement of all the above factors.

    On the contrary, there should be as much competition as possible within the EU in order to promote healthy development and the allocation of means of production.

    Littlewolf

  2. @Zdenek - of course it distorts the market and it would be nice if no one subsidized anything. However, because China subsidizes its production on the line, it is mainly China.

    And we will certainly not help the "market" (that is, all of us) by continuing to distort the market with tariffs and protectionism. Has anyone ever extinguished a burning house with gasoline?

  3. I don't think of one thing, on most of the posts on this server, at least one thought is emphasized about how bad the state's intervention in the market is, how it distorts the market, and now it's suddenly said - How great it is that China is flooding the EU with its subsidized goods Isn't that also a market distortion?

  4. @tent
    I don't know Russell Roberts' book. I conclude from the article that this was a hypothetical, not a real situation for the introduction of customs duties.
    Economic theory either works regardless of the population explosion, or it doesn't work at all. And I think the view of tariffs as a tool for general wealth reduction is still valid. Local paper manufacturers may get rich on more expensive paper, but no one else.
    The problem with jobs in the US might also look different if China spent the dollars it earned on US goods and not on US bonds. But that is the problem of the American government, not the Chinese.
    I completely agree with you on interest rate policy.

  5. re Roman:
    repair, there should be no definitely the existence of customs

  6. re Tomáš Fiala:
    Certainly, the future collapse of the system will bring not only a chance but also a danger, if some "rescuer of the people" manages to get drunk with a herd of croissants, I can repeat the VRSR. On the other hand, I see it positively, the only way such a Führer can sermon is a printing press (figuratively speaking), unfortunate for her, which will be momentarily (despite the poor memory of the crowd) very unpopular. In the case of currency cover, the power of political clowns will be severely limited, which is the main reason why this is prevented.

  7. re Roman:
    In fact, of course, nothing lasts, the expression of rich states is a contradiction in today's fiat money system, the vast majority of today's states (and their banks) are de facto bankruptcy, even those who are not bankrupt will go bankrupt and lay down those who are, this is called globalization. By the way, the paragraph Customs and Innovation and Russel Roberts is a snag of half-truth and nonsense. If what the author claims were true, no industrial revolution would have taken place, by the way, IBM, in the 50s, launched one of its most successful mainframe models, and the author probably has no idea the conditions under which the IT revolution took place. The theory that was still possible 7 years ago is now out of the question, the free market is good among comparable economies, then economists could not have expected a population explosion in Asia that turned it all on its head. Today's result in the USA clearly proves this, their original idea: we will transfer the inferior jobs to Asia and keep the white collar jobs as fun, 50000 million jobs have disappeared in the USA since the beginning of the crisis, and the jobs that were newly created are mostly underpaid Seven, a former worker from a carmaker that made $ 4 a year today packed burgers in half, Fed statistics clearly prove it. Companies like Facebook are no different than repeating the internet bubble that bursts. I don't know where the author saw any free trade, he probably flew in from Mars, the manipulation of the sickness causes the incorrect allocation of capital instead of investment in consumption, which is the main brake on innovation, certainly not the absence of tariffs. The main obstacle to setting up new companies is also the systematic downward manipulation of the interest, it prevents new companies from reasonably financing the wage fund, reducing the interest by half, eg from 2 to XNUMX% means that the company needs double capital to finance the wage fund or has to release half , that is why there is a mass outsourcing of the job.

  8. re: Stan
    I see. That's what you meant by that interest. I thought only within the limits of the existence of a central "wise banker." I myself am curious about the development regarding somehow covered or somehow, so to speak, valuable currency. They are already flashes. E.g. shortly after the "raid" on the WTC, some pumpers in the United States (or at least NY) accepted silver eagledolars as currency. I was quite surprised. But I have a serious concern about one thing. The crisis that awaits us is a great chance for an individual or a group to present to the "people" some perverted theory of well-being that he has invented. History is full of them…

  9. @tent
    Subsidies are primarily a tax robbery. taxpayer. Rich states do not lay subsidized goods, this article explains well, in my judgment. For poor countries (with low capital per capita, poor quality workforce, unstable political situation) this is undoubtedly a problem, but it will not last forever.

  10. re: Tomas Fiala
    if I talked about high tech it was ironic, I had more similar experiences, as well as I know, there was a good report on this topic on German television recently about how the manufacturers of light bulbs founded a cartel before the war with the aim of producing deliberately short-lived bulbs, but I'm not going to break it down. As for the reasons for the credit bubble, the field is of course wider, there is no room to write novels here, the uncovered currency together with the fractional reserve banking system is certainly the same binding reason. Of course, you can do something else with the interest, let them be determined by the market. Therefore, the abolition of central banks and fractional reserve banking and the introduction of currency cover will have to come. Of course, it will not be voluntary, but physically the gold market will force it over time. With overcapacity, I did not mean the use of individual production units, but the total in relation to the consumer market, it is possible to have thousands of factories whose load fluctuates and yet have a massive oversupply, this is undoubtedly related to artificially low held interest that would otherwise increase in interest rates took care of the liquidation of excess capacity.

  11. Re: Stan
    Philips and high tech product… :-). I would look for high tech elsewhere. I don't know what you do with your appliances, but after 3-4 years I continue to use them normally. And it doesn't matter if it's a Smarton or a Sony. Now, after about 14 years, I will buy a new television. Do not have to. It works well (supplemented, of course, by a setop box) and I probably have it out of laziness. Again, I will have to go through the manual and ten times I will delete / cancel some settings before I learn it.
    When it comes to manipulating interest rates. Well, there's nothing much you can do about them but manipulate them. The collapse of the monetary system is likely to occur. But for a) it will not be the result of manipulation of interest rates, but the whole complex of ill-treatment of money, which since ´71 are just colored papers, which politicians simply cannot / do not want to handle well. b) in such a case, we all put behind the hat not only overcapacity but also subcapacity. By the way, overcapacity is the reality of every production unit. 100% utilization of production capacities is a pious wish of every entrepreneur, who succeeds here and there for a while.

  12. re: Roman I wouldn't say that, of course I meant the higher price category of TV, at least here in Switzerland the price was down by less than 50%, sometimes 15 years ago I bought the most expensive Philips model for 3400 Chf, I threw it away in 26 months, repair did not pay off, then I had a Nordmende Prestige, also around 3300 Chf, in 3.5 years went into the house, the same with another Grundig smirk, a comparable model even if I do not buy with a bigger screen today under 2000, of course you can buy something for 500 smiles both equally. Africa is, of course, a broader topic, but subsidies are a problem for every state, the cheap price of imports is advantageous at first glance, but it increases dependence because domestic competition is dripping, which also destroys jobs, under the line it is never a profit.

  13. @tent
    You can also buy a TV today 10 times cheaper with a bigger and better picture. Are you really wasting having to throw them out sooner?
    Africa's problems are a little wider than just subsidized goods from developed countries. Investment and human capital will not be created there overnight, so what would be an advantage in another country (cheap imports) can cause problems there. But I do not think that this will be a permanent situation and that the whole of Africa cannot be generalized either.
    Consent regarding credit and real estate bubbles.

  14. Re: Tomas Fiala
    I am afraid that this is quite a distorted view, China in some areas certainly produce comparable quality products as the West, it does not change the fact that it is a smirk, the level of the product in industrialized countries is definitely not at the level of technological development and massive mine, often thanks use of Chinese components, it is of course intentional, today everything is made so that the product drips shortly after the warranty period, 40 years ago a poor Czech TV lasted 20 years, today's high tech product Philips can be thrown away in 3-4 years. The vast majority of Chinese products are smejdy.To just on the edge. As for the constantly quoted economic miracle of China, and of Asia in general, the ideas of some economists are directly infantile. It certainly has nothing to do with the quality of their development or economic management, or even with diligence. The Asian boom has only one reason, the gigantic credit bubble that has spread around the world as a result of US interest rate manipulation, causing huge production overcapacity worldwide that China and other Asian countries may blame for their consumption. they can never take them out and their dollar cuts can then be easily transferred from the safe to the toilet. The Chinese banking system is as bankrupt as the US, EU and Japan, and their real estate market is facing the same collapse as the US. As for Africa, it certainly does not have an industrial base, but they have raw materials that would help them catch up with development, but they are robbed by international corporations with the help of local corruption, and agrarian subsidies from industrial states are also arriving in agriculture.

  15. No. He doesn't pay for such nonsense again. What China is doing now began about 30 years ago. Nevertheless, this did not mean an economic disaster for Europe - such as massive unemployment. It is this (most likely) that has caused the tremendous development of commercial research by manufacturers and the ideas of entrepreneurial people, the emergence of new sophisticated technologies, and entire disciplines and job opportunities. But that's only because there is something like this here (industry and the education system connected to it). Africa's misfortune is that they have nothing there, but nothing at all that could replace one economic "blackout" with new industries. They do not have their own industry with development, they do not have an education, unfortunately they have nothing.
    It's not easy for China with those "slaves", as you write. She doesn't need them much anymore. It no longer produces blacksmiths on the markets. It is a subcontractor of components and a supplier of products at a very high technical level. And for that, a pile of "slaves" - unskilled labor force mushrooms is valid for you. You need at least trained craftsmen. But China must have stumbled upon it. It needs "slave" production for its markets, where they will (for now) buy blacksmiths, slow-growing Chinese industrial workers hungry for goods, but who do not have the "proper" to do so, so they will buy "market" (as we did years ago). Therefore, Africa is a new place of work for them and they are slowly beginning to industrialize it. But that's another topic.

  16. here the author pays nonsense, perhaps he could study how the EU, by subsidizing agricultural products, liquidated domestic production in central Africa, for example by exporting frozen chickens, or rather the rest of them, local production went bankrupt, the consumer suffered incomparably worse quality. USA cotton manufacturer. Promoting the principle of the free market locally, when there is no global free market, is foolish and only makes sense in comparable economies, in China, where 10 million more slaves are born each year willing to work for a bowl, there will definitely be no leveling off conditions comparable to Europe.

  17. Moment. Where do you read in my post that I consider the Chinese economy to be purely capitalist? I'm not that primitive. Even if I have to admit that I do not know the structure of China's economy in any way. I just paused at the fact that the economy can only be stirred by capitalism = market relations. The backwardness, size and "zero" were available to all Yang Tse Min's predecessors. But they tried to use it through cultural revolutions and similar vowels. And nothing. Furt "zero". As soon as the Chinese Communists began to let market elements into the economy = they began to use capitalism - lo and behold, suddenly that potential ceased to be mere potential and began to create resources. And it doesn't matter what percentage the increase of 10 looks like in the case of "0" -> 10 or 1000-> 1010.
    But I still come across this misunderstanding of what I'm writing in discussions. I have never written anywhere - there is pure capitalism in this and that country, pure and socialism in this and that country. Pure capitalism is (probably) nowhere. Pure socialism is probably not and has not been anywhere. I will omit the secret DPRK. In fact, no one knows anything about that. Even in the Czechoslovak Socialist Republic, ofiko (wonder of the world, but they were, I personally knew two) were private farmers - capitalists, in the GDR ofiko were private bakers - capitalists. In Europe / USA / China, etc., there is no pure capitalism because… And those because we can write a million. But only capitalism is what moves the economies in Europe / USA / China, etc. The problem is that the million, because everyone in the discussion starts to object to me and oppose it, as if I were an advocate of what stupid politicians are doing outside the room. , in which my comp. And yet I (and the Chinese ones) are what I'm writing, I'm just blaming the nonsense and blaming them for not being able / willing to use capitalism. It's a shame. It is the only one that is a demonstrable and simple "algorithm" for creating resources and will break through both the dandelion and the "asphalt" of the normalization MS. socialism (the marauders mentioned by me), despite its apparent "dandelion" fragility.

  18. Re-Tomáš Fiala: I don't understand where the enthusiastic belief still comes that there is a kind of "pure capitalism" in China that Europe has forgotten… The Chinese economy is mostly planned and by no means liberal především it is mainly a confusing entanglement of backward, developing , planned economies in a sharp transition, when some sub - segments (by industry or geography) have relative freedom to develop and thus grow rapidly. However, that growth is not caused by any exemplary-liberal conditions, but is rather due to the degree of backwardness combined with the size of the market. Put simply, it is growing fast from scratch, and when we combine that growth with a market of one hundred million, even respiratory perestroika reforms can give optically great results for several decades. The structure ("quality") of the Chinese economy cannot withstand any comparison with the American one, and this also applies to comparisons with the EU economy (despite all its problems). The essence of "EU socialism" is not (unlike China) given by political dictates, but by the fact that Europeans in the past earned fair competition for it (now problems are coming, managed assets are beginning to decline, so I expect a change in strategy in Europe - is an advantage of democratic regimes).
    Without political plurality, China is not flexible enough to do so - so I expect in the coming years some kind of Asian "financial flu" (see the 90s), which will collapse the "Chinese miracle" and start many years of Chinese economic stagnation, which in turn will result in some "Chinese" spring ’, ie political democratization (and other consequences).
    So it is inappropriate to talk about "Chinese capitalism", about China's ability to combine economic freedom with political centralization.
    (see Fig http://kucik.blog.idnes.cz/c/130314/Stoleti-Ciny.html )

  19. I agree with the article in principle, it also talks mainly about principles, not about practical politics, which is less black and white and more complicated, like life itself… :)) I'm just angry that you direct this discussion so violently to your website and don't allow it on iDNES uninstructed plebs brings even more diverse fun…)

  20. There are two basic models. Free market (capitalism) and controlled market (socialism). There are countries that use capitalism a lot (China, India…), countries that use it little (EU countries…) and countries that have rejected it and are striving for socialism (DPRK, Cuba…). Each oven can judge by simple comparison which economy is better. And it is interesting that whenever a more or less controlled market begins to collapse, it can be treated by capitalism. Nothing else was the "famous" reconstruction in the CMEA. The current efforts of Cuba's "commanders" are nothing else, and Kim's visit to China will not lead to anything else. Conversely (treating the problems of capitalism with socialism) it leads to a cycle…
    There are two issues missing (or I missed) in your article. 1) Not only will customs not create new jobs in new fields in the future. But with the money customers pay on customs (directly or in products made from duty-laden raw materials), they would immediately buy some products / services on the market ("businesses" for producers who need coated paper for their production and "consumers" in in the case of those who buy coated paper products, they would not wallpaper with that money). Or vice versa. We could apply for this money with our work in services / products right now. Maybe we would fail and it is not a trace that we would actually sell the work for that money. But this is one hundredth sure. We will not sell it, because it is not for what… 2) The more controlled the market = more complex for common practical use or as a result unfavorable, the more people with their economic relations flee to the black economy (see Czechoslovakia construction production = tinkers, trade = black and undercounter traders and money changers, candlelight and currencies). On the one hand, the free market becomes a very risky free market associated with all risks of freedom (lack of rules such as liability for work, definition of what is a foul = fraud, etc.) and moreover, the black economy has nothing - in the black economy no taxes are paid - eg for maintaining infrastructure, but the black economy consumes it = wears it out.

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