Good analysis of the benefits of free trade and globalization in a perfect world. Unfortunately many countries subsidize production to sell products below cost to capture markets; take VAT taxes off exports, but add them to imports; and employ regulations or tax credits to protect local producers from foreign competition. Obviously, this provokes retaliation and free trade suffers.
Wayne, you raise important points about some of the challenges to free trade and competition. Let me address each of the anticompetitive actions you mentioned:
1. Subsidizing production to sell below cost:
This practice, often refered to as "dumping," is always a concern. While not extremely common, there have been notable cases. For example, China has been accused of subsidizing its steel industry, allowing companies to sell steel at artificially low prices in global markets. The World Trade Organization (WTO) allows countries to impose anti-dumping duties to counter this practice. In 2016, the U.S. imposed anti-dumping duties of over 500% on certain Chinese steel products.
2. VAT treatment of exports and imports:
Most countries with a Value Added Tax (VAT) system do zero-rate exports and apply VAT to imports. While there are potential ways VAT policies could be implemented in an anticompetitive manner, the consensus among economists is that properly implemented VAT systems, including border adjustments, are generally neutral in their trade effects. This approach ensures that goods are taxed in the country of consumption, regardless of origin. The EU's VAT system, for example, operates this way and is WTO-compliant.
3. Regulations or tax credits protecting local producers:
This is a more prevalent problem. Many countries use various forms of non-tariff barriers or domestic support to protect local industries. For example, the U.S. "Buy American" provisions in government procurement or the EU's agricultural subsidies under the Common Agricultural Policy. The WTO has rules against discriminatory regulations, and trade agreements often include provisions to reduce these barriers. However, enforcement can be challenging.
While these challenges exist, global trade has generally become more open over the past decades. The WTO and various trade agreements have helped reduce tariffs and many non-tariff barriers. However, we must remain vigilant in defending against anticompetitive practices.
Good analysis of the benefits of free trade and globalization in a perfect world. Unfortunately many countries subsidize production to sell products below cost to capture markets; take VAT taxes off exports, but add them to imports; and employ regulations or tax credits to protect local producers from foreign competition. Obviously, this provokes retaliation and free trade suffers.
Wayne, you raise important points about some of the challenges to free trade and competition. Let me address each of the anticompetitive actions you mentioned:
1. Subsidizing production to sell below cost:
This practice, often refered to as "dumping," is always a concern. While not extremely common, there have been notable cases. For example, China has been accused of subsidizing its steel industry, allowing companies to sell steel at artificially low prices in global markets. The World Trade Organization (WTO) allows countries to impose anti-dumping duties to counter this practice. In 2016, the U.S. imposed anti-dumping duties of over 500% on certain Chinese steel products.
2. VAT treatment of exports and imports:
Most countries with a Value Added Tax (VAT) system do zero-rate exports and apply VAT to imports. While there are potential ways VAT policies could be implemented in an anticompetitive manner, the consensus among economists is that properly implemented VAT systems, including border adjustments, are generally neutral in their trade effects. This approach ensures that goods are taxed in the country of consumption, regardless of origin. The EU's VAT system, for example, operates this way and is WTO-compliant.
3. Regulations or tax credits protecting local producers:
This is a more prevalent problem. Many countries use various forms of non-tariff barriers or domestic support to protect local industries. For example, the U.S. "Buy American" provisions in government procurement or the EU's agricultural subsidies under the Common Agricultural Policy. The WTO has rules against discriminatory regulations, and trade agreements often include provisions to reduce these barriers. However, enforcement can be challenging.
While these challenges exist, global trade has generally become more open over the past decades. The WTO and various trade agreements have helped reduce tariffs and many non-tariff barriers. However, we must remain vigilant in defending against anticompetitive practices.