The European Union has agreed an “equitable” outcome with China over the vexed issue of whether the Chinese should be allowed to sell textiles to us at those oh-so unfair low prices. It looks like a pretty fudged deal to me, possibly not as draconian as the original quotas demanded by protectionist lobbies in Europe, but still a slap in the face for principled free trade.
While I have my concerns about China – it has a lousy record on human rights for starters – the development of the country’s economy along hopefully free market lines is surely one of the most positive developments of its kind in the world at the moment. Europe’s economy can only benefit in the long run if China becomes prosperous and hence generates a large middle class with a keen appetite for consumer goods and services.
And some of the poorest people in Europe surely stand to gain if they can buy garments for far less than the amount they would otherwise pay. If the case for free trade is to succeed, it is vital that this point is rammed home time and again.
Let Adam Smith have the last word on this from his Wealth of Nations:
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce
You’re right, but what is so often missing when free trade is discussed, is the plight of those working in Europe in areas subject to international trade competition. They are exposed to this fierce price and quality competition (as they should be) but are expected to compete with one hand tied behind behind their back – i.e. they have to pay the inflated taxes and prices demanded by the public sector and other protected groups in Europe (lawyers. medics, teachers, farmers etc.) who face no such price or quality competition.
Let’s also remember that China often does not take a very free trade view when it comes to imports of anything other than the basic materials its industries need.
Let’s also remember that China often does not take a very free trade view when it comes to imports of anything other than the basic materials its industries need.
Then China’s economy suffers through restrictions on free trade. That is no reason for the EU to cause pain to their own economy by restricting Chinese imports. If the Chinese are dumb enough to shoot themselves in the foot that is no reason for the Europeans to also shoot themselves in the foot.
HJHJ says [the workers in Europe] are expected to compete with one hand tied behind behind their back – i.e. they have to pay the inflated taxes and prices demanded by the public sector and other protected groups in Europe (lawyers. medics, teachers, farmers etc.) who face no such price or quality competition.
The way round this problem is to get rid of the governments which have imposed this Alice-in-Wonderland situation on them. Most people in France work a 4 1/2 day week now and they feel positive about protectionism. Old Europe is already being left behind.
Robert,
I agree, but although Europe would, overall, be shooting itself in the foot to do the same, this doesn’t mean that some very specific sectors don’t suffer badly – and unfairly – as a result. Some of these could compete well were they not handicapped by the factors I mentioned above and by China’s import restrictions.
China’s observance of intellectual property rights also leaves much to be desired.
I’m not sure I made my point very well above.
What I’m getting at is that anyone who doesn’t work in an industry which is open to international competitive pressures is hypocritical when they advocate free trade for everybody else in the interest of low prices (for themselves, amongst others). All those lawyers in government really do have a cheek lecturing industries on the need to compete without government help and to innovate quicker than their competitors in order to survive.
Free trade and open competition for practically everybody is the only coherent approach. Most protectionism is much more subtle and less easily recognised than the current textiles situation, but equally or more pernicious.
Verity,
I agree totally. Apart from the odd notion of modern capitalism that the Chinese enjoy – state subsidisation of private corporations for example – the last thing we need is Peter Meddlesome and his immediate boss
Our Little PhoneyNotre Petite Jacques realising that because he might have ‘won’ the War of the Bra then he can reinforce the French laziness in working no more than 4 days per week.How does that work? I do not work in the textiles industry but how is not wanting European textile workers to force me to pay more for clothes so they can benefit make me a hypocrite? I would only be a hypocrite if I opposed them benefiting from protectionism at my expense but also wanted my industry to benefit from protectionism at everyone else’s expense.
As a free trader, I do not want ANYONE to impose protectionist costs on anyone… so opposing it for people in other industries may be ‘heartless’ (though I would not even concede that) but it cannot be hypocritical.
Oh and…
I would not spend much time discussing it because I do not really think it is relevant… or moral for others to use politics to impose costs on others to benefits themselves. In fact protecting European textiles is one of the most regressive impositions of costs around as it inflates costs far more at the low end than the high end of the market (face it, very little of an Armani outfit’s purchase cost is due to the place of manufacture or the materials).
I certainly feel sorry for the textile workers who are pushed out of a job because of the international competition. It is a harsh reality of capitalism.
But this is this effect of the process of creative destruction that is the genius of our system. If it weren’t for unemployment caused by machines or increased labor competition, we would all still be farmers.
Some of these people will be out of a job for awhile and will then find work in other, more productive fields. Some will simply retire, and others will indeed just become unemployed and suffer. But the net result is ultimately positive.
I also agree that some professions have politically defended themeselves from economic pressure. Doctors and lawyers defend themselves by creating a high bar of entry into their fields through licensing. In a more perfect world, we would work to dismantle these systems in order to improve competition, and ultimately services and prices to the consumer. But we politics is messy and unfair, so we need to take competition where we can get it.
Someone also mentioned that it’s unfair that China expects us to open our borders to their clothing, but the reverse isn’t true for our products going into China. I also agree. It is unfair, but fair’s got nothing to do with it. It’s China’s problem that they overtax, over regulate, and tarrif their citizens to death, not ours. We should not use trade with us as a bargaining chip to open trade with them.
Let them send all the good things in life to us for cheap. They can either chose to turn around and buy things from us, or keep the paper money we send them and use it for toilet paper. Either way, trade is good for the receiver, and the lower the tarrifs and taxes, the better.
And some of the poorest people in Europe surely stand to gain if they can buy garments for far less than the amount they would otherwise pay.
I think that one aspect of this issue is that the people who make these rules simply don’t have to worry about how much they spend on clothes. They can, in most cases, afford whatever they like. It’s just a small aspect, but maybe one worth bearing in mind when thinking about this affair. Ivory towers and all that.
Perry,
Of course, you completed what I should have said. It’s hypocritical when those that are protected from competition seek to justify, or hide, their own protection whilst criticising anyone else who asks (however wrongly) for the same.
On Perry’s point about morals I agree. But my point was that it’s not textile workers/industry who are the biggest culprits here – it’s the groups whose protection and restrictive practices are rarely discussed when talking about free trade.
I agree with Paul Rattner. But we’d all agree that it is not only ‘unfair’ but inefficient overall, when workers and industries are forced out of business not because they can’t compete, but because they have costs imposed on them that their competitors do not face, by protected groups.
I don’t really think that any of us are disagreeing here. We all agree that fair trade is the way and that protectionism is wrong for any industry. I was certainly not defending it for the textiles industry, merely pointing out that protectionism in other areas makes it more difficult for them to compete. When the EU explicitly intervenes with protectionism on behalf of a particular industry there is a big outcry while the ongoing (and probably far greater and more damaging to our wealth) protection in other areas is rarely, if ever, discussed.
HJHJ, the problem with your argument is that protectionist lobbies will always claim that European textile (insert sector as desired) workers are hampered by taxes, rules etc, and therefore cannot compete on a “level playing field” wiith the likes of China, India, recently terraformed Mars, or whatever. This argument leads to a dead-end. If we want to increase the sum total of wealth on the planet and help poor people, it seems that allowing the likes of China to export low-cost textiles is a good start.
As I am sure you would accept, every pound that I do not have to spend on a new shirt or pair of socks is a pound I can spend or invest in something else – which creates jobs. This is Economics 101 for readers of this blog, surely.
Johnathon,
I thought that I had made clear that I would reject these arguments from protectionist lobbies. But are you really saying that I should censor myself from making a perfectly valid point in case someone distorts it and spuriously tries to use it as a reason to resort to protectionism for these industries? Are you suggesting that I should not use this argument to explain why less visible forms of protectionism are so harmful?
This is how new Labour works – it deliberately attacks and distorts its opponents points (remember the Tory ‘cuts’ campaign they waged at the last election when in fact, the Tories just proposed a rather modest [unfortunately] lower increase in spending than Labour’s plans). This has the desired effect of inducing timidity in its opponents and an unwillingness to debate anything other than superficially.
HJHJ, keep your knickers on. Of course I don’t want you to censor yourself. Repeat any manner of arguments you like. My point is that if people try to excuse protectionism by using the kind of points you make, then it is only right to criticise it and explain why it is wrong. Sorry for my hard words but I have a very low tolerance threshold for the kind of self-serving arguments that protectionists use. rgds
Johnathon – I don’t wear knickers as I’m really into that kind of thing, whether made in China or wherever.
I wasn’t trying to excuse protectionism – my whole point is that one of the reasons it’s so unacceptable is that it makes life much harder for fellow citizens that have to earn their income by operating in a free market. It makes us all poorer too, but it makes some of us poorer than others because those that are unprotected suffer a double whammy.
Incidentally, I wasn’t accusing you of distorting anything, just saying that it is done by groups with an interest in protecting their own privileges
Whatever we might think of the EU it’s worth remebering that the US has faced the same surge of Chinese textile imports but chose to react with unilateral tariffs. In this case it sould seem that the EU is freer trade than the US. Although both are far from the ideal.
From the outset we are told that Mandelson was acting under almost exclusive orders from Prodi/Jacques Chirac, no less. Now it turns out that all it took was a brief stopover by Tony Blair in Beijing to resolve the entire matter – cue Beethoven’s Ode To Joy (the EU anthem) and CGI fx of angels flying over Our Little St Anthony.
Am I the only one who thinks that this seems rather odd and that “stringent” trade tariffs can be easy shuffled away by one vain politico in less than 24 hours, or am I just being paranoid that Blair and Mandelson might have rigged this entire event to boost Mandelson’s image as a tough trade commissioner and Blair’s image as an international mediator? Bear in mind that Blair never once won a case as a lawyer, not once .. ever … and we’re expected to believe that he can negotiate with the Chinese?
Today Our Little Statesman is in India. I presume that in just a few hours time India will have decided that it wants to become a part of the British Empire again …
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