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Comparative Advantage and Chinese steel subsidies |
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Written by Stumo
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Monday, 30 July 2007 |
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The free trade wackos say Adam Smith justifies their cause, so don't
bother with the facts. The law of comparative advantage explains
all.
Forgive me for insulting your intelligence, but I'll
explain that comparative advantage is the economic proposition that if
one country makes linens well but printing presses less well, and
another country makes printing presses well but does not have the
materials for linen - then each country will be better off making what
it makes best, and buying the other stuff.
Fast forward from 1790's Scotland to today.
The American Iron and Steel Institute released a report (PDF file)
last week showing that China's stunning growth in steel production is
explained by old fashioned government subsidies and government
ownership - not old fashioned comparative advantage.
How's this
for free trade. $52 billion in government subsidies. 91% of
the production of the top 20 steelmakers in China is government owned.
The Financial Times reported on this. There was a request for the folks in China to comment, but no.
The
China Iron and Steel Association, the main trade body for the sector,
declined to comment, as did Baosteel and Angang Iron and Steel, two
large Chinese steelmakers, and the Chinese embassy in Washington.
This
is not the U.S. steel industry competing with smart, efficient Chinese
entrepreneurs. This is the U.S. steel industry competing with the
Chinese government. Adam Smith would not approve.
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