However some economists point out that such a

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Unformatted text preview: s. However, some economists point out that such a strategy is not likely to work. Once the dumpers have driven out their competition and raised prices, their competition is likely to return. The dumpers, in turn, will have obtained only a string of losses (by selling below cost) for their efforts. Second, opponents of the antidumping argument point out that U.S. consumers benefit from dumping by paying lower prices. The Low-Foreign-Wages Argument Some people argue that U.S. producers can’t compete with foreign producers because U.S. producers pay high wages to their workers, and foreign producers pay low wages to their workers. The U.S. producers insist that free trade must be restricted, or they will be ruined. What the argument overlooks is the reason U.S. wages are high and foreign wages are low: productivity. High wages and high productivity usually go together, as do low wages and low productivity. Suppose a U.S. worker who receives $20 per hour produces 100 units of good X per hour; the cost per unit is 20 cents. A foreign worker who receives $2 per hour produces 5 units of good X per hour. The cost per unit is 40 cents—twice as high as for the U.S. worker. In short, a country’s high-wage disadvantage may be offset by its productivity advantage. (See Exhibit 15-4 for the hourly compensation paid to production workers in different countries.) EXHIBIT 15-4 dumping The sale of goods abroad at prices below their costs and below the price charged in domestic (home) markets. Hourly compensation includes wages; premiums; bonuses; vacation, holidays, and other leave; insurance; and benefit plans. Hourly Hourly Compensation for Production Production Workers, Selected Countries Country Country Hourly compensation for compensation for production workers production workers (in dollars) (in dollars) Australia Australia $ 20.05 20.05 Austria Austria 25.38 25.38 Belgium Belgium 27.73 27.73 Canada Canada 19.28 19.28 Denmark Denmark 32.18 32.18 Finland Finland 27.17 27.17 France France 21.13 21.13 Germany Germany 29.91 29.91 Ireland Ireland 19.14 19.14 Italy Italy 18.35 Japan Japan 20.09 20.09 Korea, South Korea, South 10.28 10.28 Mexico Mexico 2.48 2.48 Netherlands Netherlands 26.84 26.84 New Zealand New Zealand 11.13 Norway Norway 31.55 31.55 Portugal Portugal 6.23 6.23 Singapore Singapore 7.41 7 . 41 Spain Spain 14.96 14.96 Sweden Sweden 25.18 25.18 Switzerland Switzerland 27.87 27.87 Taiwan Taiwan 5.84 5.84 United Kingdom United Kingdom 20.37 20.37 United States United States 21.97 21.97 Source: U.S. Bureau of Labor Statistics, 2003. Section 2 Trade Restrictions 411 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 412 QUESTION: Doesn’t the United States need to be concerned with what other countries do? After all, if other countries impose tariffs on U.S.-made goods, doesn’t the United States have to retaliate? If other countries dump goods in the United States, doesn’t the United States have to retaliate in some way? It’s sort of like having someone hit you in the face, and you just say “hit me some more.” Don’t you have to defend yourself? Suppose tariffs have been imposed on these goods. In your opinion, what would be a good reason, or reasons, to impose tariffs? Look at it this way. If firms always sought out the lowest cost labor in the world (and didn’t account for the productivity of the labor), then almost nothing would be produced in countries such as the United States, Belgium, and Australia. The Tit-for-Tat Argument Some people argue that if a foreign country uses tariffs or quotas against U.S. goods, the United States ought to apply equal tariffs and quotas against that foreign country, in the hope that the foreign country will lower or eliminate its trade restrictions. According to this “Protectionism [trade tit-for-tat argument, we restrictions] will do little should do to them as they do to create jobs and if to us. foreigners retaliate, we Critics of this type of policy will surely lose jobs.” argue that a tit-for-tat strat— Alan Greenspan egy has the potential to escalate into a full-blown trade war. For example, suppose China places a tariff on American-made radios. The United States retaliates by placing a tariff on Chinese-made radios. China then reacts by placing a tariff on American-made clothes, the United States retaliates by placing a tariff on Chinese-made clothes, and so on. At some point, it might be difficult to figure out who started what. 412 Chapter 15 International Trade and Economic Development ANSWER: If you look at it in terms of the United States as an individual and other countries are individuals too, then you get the conclusion you have reached. That comparison may not be the best one to use here. Take tariffs for example. If China imposes tariffs on the United States, you say that the United States should retaliate and impose tariffs on China. Certainly the United States can do that, but it isn’t only hurting Chinese producers when it does that. It is also hurting Amer...
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This document was uploaded on 01/16/2014.

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