WTO ruling: ‘free trade’ and ‘state capitalism’ needs broader discussion
A recent ruling on countervailing duties and anti-dumping duties by the World Trade Organization:
(bolding is mine)
Senior Economist Ian Fletcher for the Coalition for a Prosperous America offers one point of view:
The American position is that we are entitled to apply what are called “countervailing duties” against products that are subsidized by foreign governments. And on top of that, we are also entitled to apply duties designed to counteract the practice of dumping, or selling a product below cost in order to destroy foreign competitors.
Both these responses on our part have long histories of being accepted as legitimate, both under international trade law and in economics. (This is why the WTO had originally accepted our position; the new ruling is actually the result of an appeal by China.)
In terms of international law, one can trace the legitimacy of our policies at least as far back as the founding of the General Agreement on Tariffs and Trade, the WTO’s predecessor, in 1947.
In terms of economics, their justifying logic is very simple.
In the case of subsidies, free trade only makes sense if it really is free, which means that a thumb on the scale at one end of the transaction justifies a tariff, or counter-subsidy, at the other end.
In the case of dumping, free trade is not justified if one side sells below cost in order to wipe out the other and thus eventually grab the market (or most of it) for itself. Even if the attempt fails, the damage done to our industries will be real, and by then it will be too late.
There’s no serious question about whether China engages in subsidies and dumping. That’s why, in this case, we imposed duties of up to 200 percent to offset their subsidies, plus up to 265 percent to counteract their dumping.
Enter state capitalism. The flashpoint of the current dispute centers on the vexed question of what price constitutes dumping in a non-free-market economy.
In a free-market economy like our own, dumping is considered to occur when a product is sold abroad for either less than its production cost, or less than what it is sold for domestically. Unfortunately, in an economy like China’s, which is so tightly controlled by the government that many prices are essentially whatever the government says they are, this logic doesn’t work. There are no normal prices to observe in order to figure out how big the subsidy is. So the U.S. Government has been using various statistical techniques to calculate the relevant prices.
The WTO has ruled that our techniques are not legit. Bottom line? We’re supposed to overlook the vast panoply of subsidies—ranging from free land to cheap loans and a million different tax credits—because state capitalism makes them tricky to calculate.
I guess the WTO believes the market should fix it. Whats a madder with yous, America?
Do you have the original link to Ian Fletcher’s statement? I didn’t find it at the website of the organization that now employs him. He was hired last month, by the way.
Do you have the link for the rest of the WTO file? I looked for it, but it takes a while at WTO.
I just read a ‘End of the Free Market’ which examines China’s next stage of economic growth and how they are transforming their economic clout into the political arena. Highly recommended.
The US, having entered into a suicide pact, is determined by the WTO to honor it.
Chinese mercantilism has cost the US millions of jobs, and contributed to economic depression and reduced domestic investment.
The U.S. is relatively unique among nations in its determination to take paper laws seriously.
“Senior Economist Ian Fletcher for the Coalition for a Prosperous America”
I’d not take anything from a shill for those that benefit from trade tariffs all that seriously myself.
One man’s shill is another’s hero. If we use that criteria all the time, ‘who benefits from a particular point of view’…would be revolutionary. The silence that would happen if enforced would be staggering…the lost sales jobs resulting from such a stricture might tank the economy!
“If we use that criteria all the time, ‘who benefits from a particular point of view’…would be revolutionary.”
That’s not the allegation. I’m being more serious. Fletcher is specifically paid to advance the view that US companies should be protected by tariff barriers. He’s so specifically paid by US companies which would be protected by said tariff barriers.
That’s what “shill” means. i would pay no more attention to him than I would to a union leader stating that unions should be given more power, than I would to the head of GE saying that GE should get more government contracts.