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The Forum > Article Comments > Dumping on free trade > Comments

Dumping on free trade : Comments

By Stephen Kirchner, published 13/6/2013

Did anti-dumping laws help drive Ford Australia out of business?

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Chris

What do you mean by “production-consumption balance”? Our current account balance on goods and services for the last year was positive, indicating the value of what we produce is more than the value of what we consume. I think it could be higher given where we’re at in the business cycle and our terms of trade, but it’s a marked turnaround from the deficits we recorded for most of the past 40 years.

We are better off with cheap imports because it means we can buy more stuff for a given number of dollars – simple as that. Trade is good because it means we concentrate on producing what we’re relatively goods at and swap it for stuff other people are relatively good at producing. It’s a win-win.

According to the ABS, the price of motor vehicles in Australia has fallen by 14.3 per cent in the last 10 years, while other prices increased by about 30%. Who benefits from this? Anyone who drives a car, and any business that uses them.

Australia has sustained real GDP growth and real income growth in recent years when other developed economies have faltered. I think much of the reason for this is the resilience and flexibility that resulted from the economic reforms you bemoan, coupled with our good fortune in being able to produce the stuff China needs.
Posted by Rhian, Thursday, 13 June 2013 4:04:41 PM
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Sorry, the Peter Lloyd link is
http://www.economics.unimelb.edu.au/downloads/wpapers-07/1023.pdf

In my post, the closing bracket ( ] ) added itself to the URL.

Apt comment I read on another list while exploring Google for stuff about the so-called "Centre for Independent Studies":

'It's a fair assumption that any country that puts "Democratic" in its name isn't.
'The same can be said of any "think tank" that puts "Independent" in its name.'

A look at the Centre for Independent Studies' website confirms what is already obvious from Stephen Kirchner's article. The website is at http://www.cis.org.au/
(Final full stop punctuation carefully omitted !)
Posted by EmperorJulian, Thursday, 13 June 2013 4:22:38 PM
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EmperorJulian
Lloyd’s paper does indeed trace the decline in Australia’s tariffs in recent years, but it does not support your conclusion that this has been a bad thing for economic welfare. He does, however, remind us of the “beggar thy neighbour” protectionism of the early 1930s, which pretty much every economic historian agrees made the great depression deeper and more prolonged.
http://www.newyorkfed.org/research/staff_reports/sr172.pdf

Chris
This paper presents a nice simple overview of the welfare economics showing that tariffs generally reduce societal welfare in small open economies – basically the gains to producers are less than the loss to consumers
http://www.joycemeng.com/writings/trade.pdf

There are some exceptions where a country’s share of world supply/demand is so large it affects the world price. This is unlikely to apply to any Australian imports, as our market is small, but could conceivably apply to some of our exports that represent a significant proportion of global supply (coal, gold, iron ore). In these cases, the theoretical welfare maximising behaviour is a small export tax, but I don’t think any government is game for one of those!
Posted by Rhian, Thursday, 13 June 2013 5:27:38 PM
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Thanks Emperor Julian and Rhian for links.

What I mean from consumption-production balance is twofold a)when balance becomes distorted by so many cheap imported goods that our productive capacity is decimated by the elimination/erosion of key industries. For example, cheap food products may lower costs to consumers, but may further erode production in rural and regional areas.

b)when we do not produce enough wealth from goods to pay for our increasing reliance on services. I spoke to someone in real estate the other day, and he agreed that people need productive jobs to build wealth to actually buy them.
Posted by Chris Lewis, Thursday, 13 June 2013 7:20:38 PM
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Chris

Service jobs are no more or less inherently “productive” than goods-producing ones – or do you regard Mozart as less productive then the person who made his piano? Hong Kong used to be mainly a goods-producing economy and is now mainly service based. Its living standards have rocketed in the process.

If other countries can produce goods much more cheaply than us, why should we waste our resources producing them too? We are better off finding more productive uses for our people, infrastructure and investment dollars.

Cheap food imports are unlikely to destroy our farming base, as we are among the most efficient in the world at many types of farming. What imports (or export opportunities) may do, however, is prompt a shift from one type of farming (or manufacturing) to another. We produce less pig meat than we used to, perhaps because of import competition from more efficient producers, but lamb and beef production is at record highs (and much of this is exported). For all the problems our farmers face (and they are many), protection is not the answer and in fact will make things worse. The high exchange rate, climate change, drought and changing water policies, falling land values, changes to bank policies, bungled interventions like the live cattle export ban, changes in consumer tastes, rising input costs – all these have far more impact on the agricultural sector.

I don’t deny that the structural adjustment that competition can engender is painful and difficult, and believe government has a role to assist people to make economic transitions. But economic restructuring is also absolutely essential to the process of raising living standards through economic growth. Competition does not destroy our economic resources, it prompts us to use them differently.
Posted by Rhian, Thursday, 13 June 2013 8:07:17 PM
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Rhian, free trade has its strengths, but I am yet to be convinced we are all okay based on recent trends.

As for live trade of animals, what a joke it even exists.

Do you suggest we also rely on gambling because that is a growth industry? Is gambling equal to growing crops and helping sustain a rural community?

I speak to people in my area (Albury Wodonga), and I am yet to meet one that shares the optimism of free traders.

Truth is few countries adhere to free trade, and only a few are more willing to follow the concept more religiously
Posted by Chris Lewis, Thursday, 13 June 2013 8:37:17 PM
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