Sunday, November 24, 2013

16. Dumping

If food (often sponsored by the country of origin's tax payer) is donated to citizens a poor country it is called foreign aid and is lauded and encouraged. When (taxpayer) subsidised food is exported and/or sold below cost to citizens of a poor country it is called "dumping" and is condemned and prevented? Please tell me what the essential difference is.

For the serious student - here is an interesting situation of "dumping" by American chicken producers on the South African market. http://www.cato.org/publications/free-trade-bulletin/antidumping-fowls-out-us-south-africa-chicken-dispute-highlights

My personal view is - dump your cheap chicken on me! In this case I believe that we have an opportunity to export "white meat" to the US and earn higher prices on that market. Perhaps someone in the chicken industry in South Africa can enlighten me. The focus on the flow of money rather than the flow of value (represented by goods and services) by economists when looking at trade is a fundamental mistake that analysts make when analysing trade between countries. The gain from imports is always larger than the loss in money or currency! This is always true otherwise the trade would not have taken place in the first place! This holds true whether one is talking about consumer goods or capital goods.

Another point that needs to be kept in mind when talking about "cheap" imports. When a country imports "cheap" (in price terms) one is importing goods that is of relatively high value in the sense that local producers cannot compete by producing similar goods at competitive prices. The effect of this is that local productive capacity can employed in producing other products that will be of higher value (products that are valued more highly by customers).

There is no such thing as unemployment in a free market economy - just as there is no such thing as unsold goods in a market where there is no reserve price. As an exapmple one can look at the implosion of the Steinhoff share price there were sellers and buyers from R 120 per share right down to R 1,07! In the same way if a person cannot find a job, one reason could be that the price is to high for the value produced.

Cato Institute:

https://www.cato.org/publications/free-trade-bulletin/antidumping-fowls-out-us-south-africa-chicken-dispute-highlights

No comments:

Post a Comment