Trade both fuels economic growth and threatens the economic interests of domestic workers and businesses that derive their earnings mainly from their local economy. Increased trade can offer consumers access to new products and suppress the rise of prices for products consumers already enjoy. Trade helps increase the standard of living for domestic consumers and foreign workers, yet it can also diminish the standard of living for domestic workers, deleverage the taxing and regulatory authority of government, and undermine industry standards, product quality, and product durability through degenerative competition based primarily on price.
Too much trade can also make domestic economies over-reliant on foreign production, which leads to inflated prices and shortages during periods of crisis. In turn, it can make export economies overly reliant on foreign consumption and globally sourced goods, which have a limited supply, instead of loyally plentiful goods. In short, trade can either help bolster the economies of trade partners to ensure economic prosperity or foster unbalanced, unstable economic growth. Alleged “dumping,” such as the dumping of steel, is one trade issue that the Trump Administration is struggling to address without undermining healthy trade.
To address issues like dumping, people must, first, understand that economies do not behave based on what people want or feel. Like cars and computers, the economy is a machine that can only respond the way it is designed to respond. Public policies based on political decisions, public sentiments, and the emotions of leaders do not determine how an economy works. Public policies and consumer behavior drive the economy, but they do not determine how the mechanisms of the economy will perform. If people want their economy to perform a certain way, i.e. efficiently distribute national resources to fulfill the needs of the Peoples and their communities, policymakers must engineer economic mechanisms to deliver the desired results.
Trade policies must, therefore, be designed to maximize the benefits and minimize the costs of trade. The consequences of trade policies cannot, however, simply be dictated based on want people want. There are times when political considerations must be taken into account. At the extreme, war dictates policymakers cease trade no matter the economic consequences. For the sake of national and global security interests, policymakers must always take proactive steps to ensure their domestic economies do not rely on revivals and unreliable trade partners. When it comes to potentially sensitive technologies and industries, the same precautions must be taken.
Ideally, governments would only intervene in trade solely to address critical issues. The role of government is, after all, to shape favorable market conditions, not question legitimate business decisions. All governments interject politics into economics, which inhibits the function of the economy. Where non-democratic governments will dictate economic policies to favor the ruling class and secure their control over their economies, democratic governments will either shape economic policy in response to political sentiments or, if corrupted and ill-democratic, special interests. Such interference can be minimized and shaped to play a constructive role, but it is unavoidable. The way in which public officials intervene in trade relations, therefore, matters just as much as why.
When stores decide to sell a set of products at a loss, it is usually called a sale. The store may need to simply clear its inventory or it may be trying to attract more customers. Whether or not the store seeks to undercut competitors is irrelevant, because that is the result no matter the intention. Over time, these practices can harm industries, but they are not a concern for government until monopolistic businesses start to arise. Similarity, governments, as well as commodities exchanges, cannot set prices for products like steel to prevent competitors from competing for market share without creating issues like dumping and price bubbles. Outside of predatory policies by foreign governments, the same principles apply to domestic and foreign competitors alike.
In the case of alleged dumping and other trade issues, heavily subsidized, under-taxed, under-regulated, and/or poorer economies will always suppress the price of goods, thereby encouraging over-production. If trade is unimpeded with such economies, unfair trade, including the selling of products for less than the production costs, i.e. dumping, will occur. It has little to do with whether the government of the offending economy desires to engage in predatory trade or pledges to end a lack of trade parity. It is the result of economic realities. Similarly, public officials of democratic governments cannot rightfully promise to deliver economic performance or trade benefits.
To that end, governments can only control what is allowed in and out of their borders. They can only foster or impede economic development by avoiding or embracing punitive measures. They cannot control what their partners do. They can only do what is in the economic interests of their Peoples and expect their partners to do the same. As such, dumping and other consequences of doing business with countries, which foster overproduction and/or offer cheap labor, must be addressed by balancing the cost of foreign products to ensure competitiveness based on price, instead of cheap labor, weak regulation, product quality, and product durability.
Alleged steel dumping by China and America’s trade deficit with China, for example, is a function of economic disparities between the US and Chinese economies, cheap labor, state subsidies, and a regulatory regime that favors Chinese industry and artificial job creation. Steel dumping may occur from time to time or be a minor problem, but the economic realities dictate US industries will struggle to compete if price is the determining factor. Alleged steel dumping by countries like German, has a great deal more to do with the actual behavior of business. Trade disparities between Germany and the US, however, also have a great deal more to do with the actual efficiency of the German industry, not predatory trade policies.
US competitors have an incentive to discourage trade with both China and Germany, but the US government and People have an interest in both fostering domestic production as well as encouraging domestic and global competition to encourage efficiency and lower prices. Dumping should be addressed when it occurs, but dumping only offers a legal rationale for countries like the US to impose tariffs, or inefficient, disruptive quotas, when government needs to focus on bigger trade issues, i.e. economic disparities that create unbalanced, unstable trade. Moreover, US policies need to balance price disparities based on why imports are cheaper, not because they are cheaper, in other to address issue trade deficits and dumping.
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