In my Frederick Hayek inspired youth, I used to believe that unrestrained free trade was the only barrier between capitalist democracies and all the branches of protectionist “isms” in the world – socialism, communism, fascism, etc. My argument at the time was that trade of all sorts exposed inefficiencies within supply chains and would force those less competitive (for various reasons that might include high-cost labor, lower quality, production inefficiency, etc.) to improve or go out of business. Commercial Darwinism, if you will.
If every company and country played on the same playing field, with the same rule set, this would be a wonderful and true thing. Unrestrained trade would provide a type of accelerated Darwinism leading to faster and faster cycles of innovation, better choice and lower cost for consumers and greater insulation from the machinations of Keynesians trying to tweak the economy in one direction or the other. It would also make the world a much more equal place, at least in my academic view.
Yet countries don’t all play by the same rules, with China being the best example thanks to its subsidies of various industries (providing what amounts to vertically integrated subsidies to lower the costs of raw materials), offering creative tax rebates that incent certain types of production and, of course, currency manipulation that is designed to lower the costs of exports. Other countries including Germany and the US may employ similar tactics, but to compare them to China is like comparing Thomas the Tank Engine to a real GE locomotive.
A recent anti-dumping case in Chicago involving Elkay Manufacturing, which our sister site MetalMiner covered, provides a glimpse into how far some countries would go in order to reduce the costs of their goods to a point that puts competitors out of business. We’ll highlight these tactics in the next installment in this series, as well as how Elkay ultimately prevailed against Chinese companies that not only were playing by different rules, but on a different playing field entirely.