Debunking More Republican Protectionist Nonsense
Proponents of protectionist fallacies are never short of sophisticated arguments (sophistry) to support their agendas; they will invoke everything from patriotism to economics, and will even appeal to your emotions by throwing pity-parties for the domestic shopkeepers and laborers that are put out of business due to the "unfair” competition from foreigners.
To their appeals to patriotism I say, “When did America become a nation of whiny little bitches!?”
To their throwing pity-parties for domestic shopkeepers and laborers, I call it what it is; a fallacious appeal to emotion meant to shut down any argument against the protectionist agenda.
But to their appeals to the economic aspects of the problem, I’m afraid a more in-depth analysis is called for, especially in the case of “dumping”. Dumping describes a process by which an exporter of a product will “dump” his product onto a foreign market by selling it (or just giving it away freely) below cost of production. The theory is that by doing this, the foreign market will put the domestic suppliers for that product out of business. Then, when there are no more domestic suppliers of that product, the foreign suppliers raise their prices in order to recoup what they lost by dumping, and as a result, domestic consumers suffer while foreign producers profit by our expense.
For example, suppose it costs a Chinese manufacturer of computer chips $1,000 to create that chip. Dumping theory would have it that the Chinese supplier will then sell those chips to an American importer in bulk for what amounts to $100 per chip. Then, when the domestic supplier of those chips are put out of business, the Chinese supplier will boost the price of those chips from $100 to $2,500.
There is one problem here that should immediately jump out at you, even if you’ve never had any sort of training in economics; if you were the owner of a company that made computer chips and it costs $1,000 to make one chip, can you seriously see yourself selling that chip in bulk to anyone at $100 per chip? There is an obvious incentive right here to not try to engage in this sort of thing. Ah, but the protectionist will be quick to answer, “No, normally this would bankrupt you, but the Chinese government subsidies it’s exports, so these companies can maintain the loss for long periods of time.”
But even so, this doesn’t guarantee that domestic suppliers will be put out of business. True, there is a huge economic incentive to buy Chinese instead of American in the above example, but there are many people who’ll buy American no matter what. Even today in the real world, there are people who refuse to buy foreign-made cars and will go out of their way to buy American over Japanese for instance.
But, let’s entertain this thought for a moment that this foreign subsidizing of exports will put American suppliers out of business, and that they the foreign supplier will indeed raise his price well above. What this means is that foreign competitors will sharply undercut him. In our example of the Chinese Manufacturer of computer chips, if he indeed raises his price to $2,500, he will be undercut by a Japanese Manufacturer who’ll be competing for the American consumer. He will offer the same chip for $1,500 – $2,000, which puts downwards pressure on the price of Chinese computer chips, and this says nothing about the other countries that are in the computer chip business.
There are two other variables here that must be considered. First, there is the possibility that America might return to the computer chip business. If that is the case, the Chinese Manufacturer now has even more downwards pressure put on the price of his product.
The second variable here (and the one that is most likely to happen in my opinion) is that when the Chinese Manufacturer is dumping the chips in bulk at $100 per chip, American importers are most likely to buy as many of them as possible because they know the price of those chips are eventually going to go through the roof. This way, when the price does go through the roof, American importers of those chips have enough of them to not have to import any more of them. This throws a monkey wrench into the plans of the Chinese manufacturer who planned on profiting at the expense of Americans, and it completely destroys the dumping argument put forth by Protectionists.