As a United States citizen, I should be careful how much I complain about price fixing in the rest of the world (especially considering the recent farm subsidy payouts working their way through our legislative branch). We don't exactly set the best example here of letting prices dance as the invisible hand conducts its orchestra. But China is far worse than we are -- which long-term, won't be good for anyone. Consider this recent Bloomberg news story which suggests that "China may cap steel and cement prices to curb inflation as the nation rebuilds after the May 12 earthquake ... Inflation will accelerate because of increased demand for raw materials to repair destruction by China's most powerful earthquake in 58 years," according to a report from Citigroup. The story note that the Chinese government "currently controls prices of gasoline, diesel, jet fuel, coal and power."
But just how effective are price controls in China? The answer is not very. Consider how recent coal fired power plants recently shutdown production -- causing outages at various manufacturing facilities -- in protest over higher coal prices but fixed energy prices. Or look at the black market for rice and potentially steel which is forming, according to Spend Matters affiliate blog Metal Miner. Long-term it's the Chinese who will pay for price fixing in the form of reduced access to global markets -- thanks to countries who will put up tariffs in response -- not to mention the Chinese people who will face product shortages and rising black markets as companies and individuals look to sell commodities outside of the fixed government price controls. When will China -- not to mention the US -- ever learn that short-term price pain is always better than the longer-term implications of price fixing?
- Jason Busch