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.
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.
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.