Free trade, anti-dumping duties and trade tariffs - Government policy should be pro consumer, pro abundance, and not pro producer

The topic  of restraining imports to "encourage" domestic producers, consumption of domestically produced goods, combined with it's nationalist rhetoric, was covered and explained well by Adam Smith. For some reason, after 250 years, the lessons of the Wealth of Nations have not been understood. So here I will attempt to explain this.

US Steel and AK Steel are two big steel makers in the USA. They want the US government to put anti-dumping duties on china for "selling steel below cost to get market share" etc. Micron Technology does the same stuff for Samsung and Hynix memory chips.

The US Government should completely ignore the pleas of these companies which want to restrict importation by anti-dumping duties.

If someone sells something below cost-what's the consumer's problem??? It is great for the consumer! There is abundance of that commodity in the home market (Steel, memory chips) and that in turn is great for the US consumer. If US Steel and Micron go bankrupt in the process, that is their problem. The Government, instead of discouraging the monopolization of the home market by local producers, actually encourages it by putting anti-dumping duties! Talk about these companies really convincing Uncle Sam to kill the consumer's interest for their benefit.

The goal of public policy should be to reduce costs of everything, to make everything more abundant, for the country's consumers. That's the basic philosophy which they should follow. If that means some domestic producers are wiped out by the a skilled importer, so be it; that is not the Government's problem. All they should care about is the consumer. They should not encourage national rhetoric clould their good judgement-which should always be to favor lowering of costs of everything, or increasing their abundance, which is really the same thing.

The other day I heard about India putting anti-dumping duties on ceramic tiles for China. The local producers told about how the importation was killing the domestic industry-and the poor government fell for this self-serving logic of these producers. The result is that people in India are stuck with bad quality home made ceramic tiles, instead of  better quality cheaper tiles from China.

Plus there is a moral issue there. Why should a government favor the domestic producer's interest over the interests of the importer, who is risking her capital to import the foreign goods? An importer is a citizen of the country as much as the producer is. The goal is not to provide jobs, it is to lower the price of goods (increase their abundance). The domestic producer always invokes the argument of job loss to convince the government to restrict imports; and the consumer suffers by having a shoddy product only in the home market, thanks to the domestic producer and the workers employed by these producers.

If the foreign goods are good, the consumer will prefer those. That means the domestic producers will have to work harder to improve the quality of their product, which is a good thing for the consumer, and what's good for the consumer, is good for the country.

If the foreign goods are inferior, there is no need to fear-the public will realize this and will keep buying home made goods (this happens too, the only loser is the importer and the foreign firm).

If anything, importation should be slightly encouraged, at the expense of the domestic producer. This will force the domestic producers to be become better. Otherwise they are assured a monopoly over the home market (which they so enjoy) and they will keep producing bad quality goods and screwing over the consumers of the country with the high prices.

Any country where importation is restricted is full of bad quality products. Conversely, the more free the importation, the better the quality of products is. The Government should not worry about domestic jobs lost (the people who works for the bad domestic producers will find other jobs) or the interest of the domestic producer; it should only worry about the consumer.

Anti-dumping duties and all sorts of trade tariffs should be abolished in all countries. If some foolish foreign manufacturer wants to sell their goods below cost, to gain market share or whatever, they country should accept that as a gift, and not reject it! What happens to the foreign manufacturer is their problem; if they are truly selling it below cost, they will soon go bankrupt. If they are not, as is most likely the case (who wants to sell stuff below cost?), then the domestic market will have better quality products overall, which will be a great thing for the home consumer.

There is some talk of risk of domestic jobs being lost when you buy foreign products or outsource. True, that the producers who produce shoddy goods will lose their capitals. But that's fine, because the best products, wherever they are made, should be rightfully supplied to the home consumer. If that means a loss of jobs of certain producers at home, so be it. The goal of the political economy is to increase the amount of consumable goods for consumers, not to provide jobs. Communist North Korea has everyone employed, but the overall production of the society is quite low (adjusted per capita). Part of the reason is a protectionist government. In practice, the domestic producers don't fire people; they just compete to make products better. This is exactly what they want to avoid by restriction on imports or outsourcing of jobs to a foreign country.

Politicians love to create jobs in their home market by restraining imports. Consider an extreme case: what if a country just gives away a product to you, just as charity? Let's say China decides to give away steel to the US, not charging anything at all, is that good for the country? Well it will lead to steel companies' bankruptcies, which is not good for the US steel producers or their workers, but is can't be bad overall-it is  a free gift! But the job-keepers will argue that even free gifts are bad-because they will result in job losses in the US steel sector. Their position is contradictory to common sense-no one became worse of accepting free gifts! The point is-the domestic products must freely compete with imports, and the consumers or whoever is the buyer of these products are alone the best judge of what's good for them. Tariffs on imports hurt this natural flow of goods-they are like an artificial dam which hinders the natural flow of goods into the country, based on what the country's consumers need. If consumers want to buy domestic products at higher prices for patriotic reasons, they certainly will have that option, but let's not get carried away by the desire of the few who buy only local to the majority who don't care where products are made as long as they are cheaper (for the same quality). I personally couldn't care less if something I buy was made in China, Angola or Sweden-if the product is the same quality as a domestic product, I will certainly buy the imported product.

Argentina and Ecuador have huge restrictions on imports, with heavy duties. You see the shoddiest domestic products in these countries-there is no competition from foreign products. Chile on the other hand is a very free country for importation; and we see excellent quality products from all over the world in Chile. In Temuco, a small city in South Chile, we eat butter from Ireland and France, rice cookies imported from Thailand and drink beer imported from Russia. Argentines come to Chile to buy all sorts of goods-which because of high importation duties are scarce in Argentina (or high priced, which is the same thing). Any country which has free importation is helping it's domestic consumers immensely.

Good domestic producers not only are not afraid of foreign competition; they want to go to a foreign country and eliminate the bad products there! Starbucks and McDonalds are good examples. These US based companies have become worldwide phenomena-because they give good quality products (I must mention that whenever we call a product good or bad, we must always consider the price; i.e. we are saying good products for the same price in comparison to other products. McDonald's and Starbucks offer good products in country X for $Y means that for $Y, you can't get a better value in quality in country X than McDonald's and Starbucks, broadly speaking.) to consumers everywhere. I can personally testify that Starbucks has improved the coffee shop experience in every country it has opened it's shops; the domestic coffee shops are forced to increase the variety of coffees and milks, etc. which Starbucks offers, and in general, the consumer is happy. More choices, lower prices, and happy consumers. That's what importation of foreign goods and services brings.

There is an argument of "retaliation" which is used sometimes-it is bogus. The argument says that if China doesn't allow US imports in, then the US shouldn't allow Chinese imports in as well. China by restricting US imports only hurts Chinese consumers, who pay higher prices because all products are from domestic producers. Even if China doesn't accept any US goods, it still is good for the US to import stuff from China, because the US consumer is helped. Free trade enthusiasts fall for the reciprocity and retaliation argument, not realizing that a unilateral importation helps, regardless of whether China imports or restricts US products. Free trade does not mean that a foreign country opens their borders to our products-it just means that our country opens its borders to all foreign products. Our behavior, our government's behavior, is under our control-and even foreign countries do not import anything from our country, importing unilaterally is great for us, because it lowers costs for our consumers. If foreign countries do not want to import they are just shooting themselves in the foot. Let them. A similar thing happens with visa regimes-where countries often require reciprocity to allow visitors from other countries. But smart countries do not do this-Europeans and Americans can enter Bolivia and Thailand (two smart countries in this sense) without visa, even if their citizens cannot enter Europe and USA without a visa. It is beneficial for tourists to come to your country-regardless of whether other countries accept tourists from your countries.When someone chops off their hand, you don't chop off yours and think you are retaliating. That's what barring imports of a country which doesn't import my products is.

Love thy importers-they bring the best products to you

In every country I have been to the world, I have seen that imported products are better than domestic products (for the same price).

Important Note: You can compare goods keeping the same price, and you will find imported goods are better quality; or you can keep the quality the same, and you will find that imported goods are cheaper for the same quality. Whenever we compare product quality and say X is superior to Y, we automatically mean that the price is the same.

Think about it for a second-an importer uses their judgement about the home market to import products. If the same products or similar quality products were cheaper in the home market, why would they bother??? They can always become distributors of the home products, and everyone is happy-they don't have to go through the hassle of importation, paying extra costs for transporting something, customs and government approvals, etc. They are risking their capital more when they import than when they buy something from one part of the country and sell it in another. They will do this only when they are sure that the foreign product is better quality (for the same price), and while true that sometimes every businesswoman makes a mistake, as a general rule, importers bring good products from the world to you. You can actually use this to you advantage everywhere-when I go to Argentina I will buy a product X from Brazil or Paraguay, than something made in Argentina, because the importer has probably done their due diligence and realized that the importer product is better. Similarly, I would buy a Russian product in Italy than buy an Italian product, trusting the acumen of the importer. Domestic producers are generally an indolent bunch, and have their established channels of sales, distributors, etc (read: little monopolies) and unless they are threatened by imported products, they will remain that way. Importation helps them improve, helps the domestic producers learn from better quality foreign products. And in the meantime, the consumer, who is the most important part of the whole country, benefits. If the domestic producer learns their lesson and becomes better, you will see that importation will automatically go down.

In some cases, whole industries are outsourced to a foreign country or producer. For example, textile products and household kitchen items are really good quality (or cheaper, for the same quality) in China. If the US imports all its textile materials-clothes, etc. and kitchen items from China, it may find that most domestic producers in these sectors do not exist anymore. However, this is nothing to worry about-their bad luck in these sectors makes labor and capital available for other sectors, e.g. US High Tech sector, where US has a  big edge; and instead of the country (US) trying to do everything-from making clothes to semiconductor chips, it only dedicates itself to semiconductor chip production, and buys all the clothes it needs from China. That way lower skill products are in general always going to less developed countries; and a developed country like the US can dedicate all it's capital to what it does best-product technology products for worldwide use (Apple and Google make more money outside the US than inside it). This is your classic specialization and exchange of Adam Smith at work, at the country level.

Do unto others...

There is another interesting moral issue there as well. If you are against importation,  and if you believe in "Do unto others as you want them to do unto you" you must be against exportation as well; because the other country's domestic producers are being inconvenienced by your exports to it. If you think that you have the right to export goods, and compete in foreign lands with their domestic producers, in a simple matter of fairness, you should allow goods from those countries to come in freely into yours. You can't be pro-exportation and contra-importation if you are fair country. Every country wants to export only and not import-which is not possible for any country, as I have already shown in a post.

Patents are bad for society for the same reasons

Patents are a closely related subject. They act much the same way as duties on importation. They stifle competition, aid monopolization, and raise prices for consumers. Patent Offices worldwide should be very parsimonious in granting them-only the very important discoveries should be patent protected.  Patents on drugs should be completed eliminated. More on that here.

Patents by technology companies are all the rage nowadays. They are used to prevent new entrants to fields. Patents by Apple Inc. on design of cell phones belittles technological advance of humanity. Design patents, software patents, all these intangible patents, should be completely thrown out of the system. The Government, instead of preventing the formation of monopolies (and decreasing the cost of goods for customers), is fooled into aiding their formation!!! Such are the machinations of companies to fool the law to screw over the public and the consumers.