Let's say companies, A, B, C are US companies in the same industry. Companies X, Y, Z are Chinese companies in the very same industry as A, B, and C.
The U.S. has more of a free market. We (Austrians) are usually critical of government intervention, subsidies. In this case, firm A is subsidized, while firm B and C are not. We would be critical of the subsidized company A.
All of the Chinese companies, X, Y, Z are all subsidized by the government. X is directly subsidiezed with the Chinese govenrment granting money for operations. Y is indirectly subsidized, where worker housing is funded by the government. Z is indireclty subsidized with the government buying down the price of the good for export.
X, Y, and Z are able to produce goods cheaper and faster than A, B, and C because of this subsidization.
How can US companies compete against subsidized Chinese companies?
I don't know if this is from a theoretical perspective, but since the government is diverting resources away from where the market wants therm, the company that is competing against the subsidized Chinese companies could enter the sector from which the resources were diverted.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
You could just take advantage of the low prices. You can't subsidize everything...
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Let's take it to an extreme. If manna started falling from heaven, giving everyone free delicious healthy food every single day, how can US farmers compete? What is the correct economic response to such an event?
Agreed, we have to rely on the fact that "with every grant of complete security to one group the insecurity of the rest necessarily increases. If you guarantee to some a fixed part of a variable cake, the share left to the rest is bound to fluctuate proportionally more than the size of the whole. And the essential element of security which the competitive system offers, the great variety of opportunities, is more and more reduced." (Road to Serfdom, 153) When the Chinese narrow their range of opportunities by subsidizing a certain sector, American entrepreneurs should aim to fill the winnowed gaps of China's production. We can always beat them at something, as long as they tend towards their artificually secure industries. It is unfortunate, however, that the American entrepreneur should have to respond to the whims of Chinese governmental policies. This is why nationalist interventionism leads to multinational conflict.
How can India compete with the wheat we're giving them for free as foreign aid? They can't, and why should they? If China wants to give foreign aid to the US, let them.
Thanks all for the input. Yes, this is a theoretical perspective.
This is what I have understood from the conversation thus far:
@Daniel, @Ryan: The US companies should not try to compete, but rather find the area of the market of which it can. Granted, this is much easier said than done, if the company is told for one industry and not for another.
@Sieben, @EmperorNero: I don't think taking advantage of low prices answers the question directly. Granted, it may be a good economic move for a third party not in the industry. The US should accept such actions as it benefits us with lower prices.
@Smiling Dave: Thanks for the extreme example.
Lingering question(s):
@All: To play devil's advocate to Sieben and EmperorNero's point, why not just have the US subsidize the same exact industries so we (the consumer) can benefit from lower prices directly?
why not just have the US subsidize the same exact industries so we (the consumer) can benefit from lower prices directly?
where is the money coming from/
One could argue that it is being paid for by maybe a fraction of a penny from each taxpayer. Thus, food is several cents/dollars cheaper, the company being subsidized is expanding/creating more jobs, and all is well. Thus, says the interventionist, the economy (or rather, the local economy) has been improved by an utterly insignificant increase in taxes. You could say that the money could have been spent better in another way, and you would be correct, but the amount lost per person makes practically no difference to what they spend and it is doubtful enough people would pool their fraction-of-pennies together to buy anything of note.
(Playing the statist is fun!)
"where is the money coming from/"
for the sake of argument, assume it comes from the us counterpart of how the chinese do it?
"(Playing the statist is fun!)"
Thanks for arguing this position.
"@Sieben, @EmperorNero: I don't think taking advantage of low prices answers the question directly. Granted, it may be a good economic move for a third party not in the industry. The US should accept such actions as it benefits us with lower prices."
To provide a related example to this, think of Universal Health Care (not necessarily ObamaCare), i.e. subsidized health care. Shoudn't we accept such subsidizations because it benefits us with lower prices? (In reality UHC, in its current implementation, makes costs and prices go up, but just citing this example for the sake of argument.)
Vienna Sausage:"@Sieben, @EmperorNero: I don't think taking advantage of low prices answers the question directly. Granted, it may be a good economic move for a third party not in the industry. The US should accept such actions as it benefits us with lower prices."
Vienna Sausage:To provide a related example to this, think of Universal Health Care (not necessarily ObamaCare), i.e. subsidized health care. Shoudn't we accept such subsidizations because it benefits us with lower prices? (In reality UHC, in its current implementation, makes costs and prices go up, but just citing this example for the sake of argument.)
Sieben:This isn't really the same kind of subsidy... Its on the consumer side, rather than the producer side. There's no one that the subsidy is trying to "outcompete".
Assume the subsidy for UHC is on the producer side. Shoudn't we accept such subsidizations because it benefits us with lower prices?
ViennaSausage:Assume the subsidy for UHC is on the producer side. Shoudn't we accept such subsidizations because it benefits us with lower prices?
"Rip Off of Full Free Trade Advantage"
One may want to challenge the egalitarian emphasis by proponents of http://en.wikipedia.org/wiki/Purchasing_power_parity.
One may presume that imports to the US, which were created relatively inexpensively, are marked up according to the one price index.
One may presume that exports from the US, which were created relatively expensively, are marked down according to the one price index.
And, from the transactions a trade balance is established by bureaucratic manipulation.
Suppose china maintains an artificially lower value for its currency, then its GDP and price index are also artificially low, which means that there is a greater markup on its imports to the US, while there is a larger mark down of US products; hence, the ratio of imports to exports as a balance of trade is a concern.
Reasonably, the US could maintain a policy of zero balance trade with china, which means that the total of all imports after mark up should not exceed the total of all exports after mark down.
If china is subsidizing a lower price for its exports, the US may do the same, but a zero balance of trade could force the chinese to accept more US goods.
Some have proposed that there is a plan to develop stagnant economies to enable them as future trade partners.
Whatever the plan may be, the PPP schema does not allow US peoples to purchase products inexpensively (medications, etc.), thereby exacting greater advantage from its wealth.
"Foreign Divide And Conquer"
http://en.wikipedia.org/wiki/Neomercantilism
Neomercantilism is a term used to describe a policy regime which encourages exports, discourages imports, controls capital movement and centralizes currency decisions in the hands of a central government. The objective of neo-mercantilist policies is to increase the level of foreign reserves held by the government, allowing more effective monetary policy and fiscal policy.
....
Its policy recommendations sometimes echo the mercantilism of the early modern period. These are generally protectionist measures in the form of high tariffs and other import restrictions to protect domestic industries combined with government intervention to promote industrial growth, especially manufacturing. At its simplest level, it proposes that economic independence and self-sufficiency are legitimate objectives for a nation to pursue, and systems of protection are justified to allow the nation to develop its industrial and commercial infrastructure to the point where it can compete on equal terms in international trade. In macro-economic terms, it emphasizes a fixed currency and autonomy over monetary policy over capital mobility.
Sieben:What part don't you see? Subsidies means higher taxes on the chinese, so it reduces their ability to buy american products.
This is the part where I have difficulty understanding the logic of accepting goods from subsidized industry because we are not being taxed, but at the same time not accepting subsidized industry in the US (whether it be UHC, steel, coal, solar power) because we are the ones being taxed.
Thanks for adding your two cents Monk-Eye. An intersting addition to the conversation.
@John James: Fascinating video.
Buy them up at the subsidized price, then resell it at a marginally higher price to make up on volume the same demand for the same goods. I believe Dupont did this in the 19th century in reaction to the German chemical cartels that were trying to flood the US market in reaction to his entrance to the EU/German markets.
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
Well, by definition, they can't subsidize EVERYTHING, so there's always going to be industries left for us to enter. But its just like they have comparative advantage. Except instead of being really good at manufacturing cars they have slaves.
If a guy has been, say, an auto engineer for his whole life, it is small comfort to him that other people can get jobs in other sectors that he will never be able to reach. Many people would lack the qualifications to switch to something else regardless of whether the subsidies forced their companies out of business or not.
Free trade policies only work if both sides agree to play by "the rules".
Otherwise you are just ceeding competitive advantages to another country(s).
Outsourcing may put money into a few peoples pockets, but it results in a loss of capital for the countries that indulge in the practice.
Big mistake.
ViennaSausage:How can US companies compete against subsidized Chinese companies?
It really is foolish to look at subsidies in a rigid dollars-going-to-THAT-industry sense. Everybody in statism receives subsidies in some way and it all gets washed up.
In the US, people get subsidized education and subsidized oil and subsidized other things. All of this comes together to make consumption of OTHER industry products more/less affordable. The same goes in China.
In China, they get subsidized pictures of Mao everywhere they turn. Who could compete with that??
Smiling Dave:Big mistake..
No.
Smiling Dave:Big mistake.. No.
Smiling Dave:Big mistake.
it results in a loss of capital for the countries that indulge in the practice.
Well, arguably by buying stuff from China we are taking their natural goodies and giving them cash, which could become worthless at any point if people refuse to take it.
Steven Landsburg.
Clayton -
The whole video is really nice. Landsburg OWNS the interviewer: the discussion is keeping jobs in the US and buying American, which Landsburg calls akin to racism: "Why is it OK to not discriminate based on race but to discriminate based on nationality?" The interviewer moves on, saying he doesn't think this needs an answer.
But he is so right! You can't control either your nationality or your skin color. Why discriminate based on place of birth?
Of course, one could argue that buying US goods leads to the money circulating back to you faster as can be seen by donating to a homeless guy in your city vs to some random homeless guy in a completely different city. It directly leads to an improvement in your environment. Hm, what would be the argument against this, or is there none? Because I find Landsburg's reasoning appealing though flawed when it is truly broken down (due to the above homeless guy reason).
Wheylous: Of course, one could argue that buying US goods leads to the money circulating back to you faster as can be seen by donating to a homeless guy in your city vs to some random homeless guy in a completely different city. It directly leads to an improvement in your environment. Hm, what would be the argument against this, or is there none? Because I find Landsburg's reasoning appealing though flawed when it is truly broken down (due to the above homeless guy reason).
You benefit more from a wider division of labor than you "lose" from not having your "money circulating back to you faster". You could place an order for a Ferrari 458 Italia with your brother in order to keep your money "circulating" within your family, but you still decide it's a better idea to pay for someone in Maranello to make it instead.
I guess the argument could be that when you're talking about Detroit and you don't live in Detroit the factor of money circulating back becomes so small as to not matter and then simply being down to nationalism. Yes?
In an interconnected world, with global division of labor, geography/locality becomes a less significant factor in the "money circulating back" equation. What's stopping someone in Detroit from running a company that sells software to Ferrari and using the proceeds to order a Ferrari car from Maranello? It's not like someone has to carry the bags of banknotes on a steamship both ways across the ocean. You just need to be making stuff that someone wants. It doesn't have to be your brother or your neighbor.
Clayton: Steven Landsburg.
Clever. I will have to look into him further, but I take it he is Austrian? Or just Free Market?
Wikipedia says he claims he's a "hardcore libertarian", but I don't know what that means...
He's a contributor to Slate.
Here's his website.
He's not Austrian as far as I can tell. My guess is he's a Chicago type. His style of argument reminds me of David Friedman, very utilitarian oriented - great for refuting utilitarian arguments against the free market. Less useful for refuting the moral imperative of "fairness" implied in collectivism - by far the dominant moral system in the developed world.