This article by Ivo Vegter, first publish in the Daily Friend of 16 May 2023, is a must read. It spectacularly illustrates how Government’s policy of dishing out import duties is contra-productive – a bad idea all-round. Gerhard Papenfus
We should welcome dumping, not penalise it.
By Ivo Vegter
Published in the Daily Friend on 16 May 2023
The government is weighing new anti-dumping tariffs of up to 232% on a range of products imported from China and India, ostensibly to protect local industry. Bad plan.
The International Trade Administration Commission (ITAC), a bunch of pencil-pushers tasked with second-guessing the ‘proper’ pricing of imports, has asked Ebrahim Patel, the communist in charge of the Department of Trade Barriers, Deindustrialisation and Collusion (DTIC), to impose ‘anti-dumping’ tariffs on a number of products imported from China and India.
China and India are our big buddies in BRICS, and are among our biggest trading partners, ranking 1st and 8th, respectively, in 2022. By contrast, our other buddies in BRICS, Brazil and Mother Russia, the Glorious Empire that revolutionary anti-Imperialists so love to serve, don’t even enter the top 25.
But all is not well between the buddies. Their crime? They’re selling us things at low prices, and we don’t want to pay low prices. We want to pay more. Up to 232% more, in some cases.
Haven’t you found yourself visiting a retail establishment with marked-down prices, and felt sorry for the retailer? Haven’t you gone to the store manager and insisted that they charge two or three times the price for their obviously excellent merchandise, because that would be ‘fair’, especially to their more expensive rivals across the street?
No? That’s surprising, because that’s how bureaucrats in socialist governments (like our own) approach foreign trade.
They argue that if foreign companies sell products at prices that are lower than they’d charge in other markets, it is not a wonderful opportunity to take advantage of, but it’s a dangerous menace. If they do so, our trade apparatchiks believe they ought to levy a surcharge on the product, which goes into the state kitty for spending on all the wonderful things government officials spend money on.
Note that dumping is not the same as predatory pricing, in which a deep-pocketed company sells products below cost just to drive smaller rivals out of business, so they can gouge customers later. Predatory pricing is actually rare, and equally rarely successful, in a free market.
Dumping merely involves charging different prices in different markets, with which rivals in an export market (such as South Africa, in this case) cannot compete. If such import pricing causes ‘material injury’, or even the threat thereof – with ‘injury’ meaning job losses, a loss of market share, or a decrease in prices, sales volumes or profits – then the dumping is ruled illegal, and anti-dumping tariffs may be raised.
This sets an extraordinarily low bar for claiming ‘unfair competition’, which is readily exploited by opportunistic companies to demand protection from the state.
In this case, our bureaucrats believe that we should all pay substantially more for (checks notes) laminated safety glass, spades, shovels, picks, rakes and forks, because our local producers are either too inefficient, or are burdened with too many rules and regulations, to produce them at prices that are competitive with the landed prices of imports from China and India.
So-called anti-dumping tariffs are pure protectionism, and a testament to why the complex rules of the World Trade Organisation are pretty pointless. If you agree that free trade is a good thing, as signatories to the WTO Agreements claim they do, they shouldn’t give countries every excuse under the sun to impose new, punitive barriers to trade.
One frequently-cited justification for protecting local business is that the business is ‘strategic’. A government might want to protect, for example, a steel maker, or an oil company, or a weapons manufacturer, because it might become necessary to be self-sufficient in such products should war break out.
It is pretty far-fetched for South Africa’s government to claim that we might find ourselves in a position where we cannot buy such products from abroad, and I cannot see any reason why pitchforks and pickaxes are a strategic manufacturing sector.
Another argument is that anti-dumping tariffs protect local jobs. They do, nominally, but they do so at the cost of a greater number of consumers who become relatively poorer.
By keeping inefficient companies artificially afloat, they also prevent the reallocation of capital from companies that produce over-priced products to more productive companies that make products that are locally and globally competitive, and would have produced real economic growth and sustainable job creation.
Anti-dumping tariffs reduce the competitive choices available to consumers. They make markets smaller and raise the cost of doing business.
If forks and shovels become more expensive, then so do construction, plumbing, and garden services. Because they are more expensive, basic price theory says fewer of them will be bought. Fewer construction, plumbing and garden services means fewer people can be employed by construction firms, plumbers and garden services.
Besides the direct economic harm that anti-dumping measures inflict, they also stimulate price gouging. Companies know how to play the tariff regulators.
It does not take overt collusion for local manufacturers to maintain high prices and fat profit margins if they know they can get anti-dumping protection against foreign rivals who cut prices to gain an advantage. In fact, the state meddlers will even give them an implicit lower bound for their pricing: the price of imports plus the value of the tariff.
The result is that consumers pay more, not only for the import, but also for the domestically-produced alternative.
This protection of local producers, even if they’re inefficient, relieves them of the burden to be innovative. It prevents creative destruction. It inhibits growth. Anti-dumping tariffs also drive up inflation, which hits the poor the hardest.
The only people who benefit from anti-dumping tariffs are the government’s corporate cronies who charge excessive prices for their products. They hijack the taxation power of the state in the interest of private profits.
There really is no defence for imposing anti-dumping duties on anything. Instead, the government should get out of the way and allow consumers to enjoy an uninhibited, competitive market, filled with high-quality goods at low, low prices.
Protecting corporate profits at the expense of the people is not how you deliver ‘a better life for all’.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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