Friday, December 09, 2005

Put your foot down in cheap imports!

Back in 1997-98, I interviewed over 100 shoe manufacturers in Marikina City (in Metro Manila, Philippines) for a survey connected to my dissertation. Marikina used to be a famous shoemaking town. Most of firms I interviewed were small scale, a few were medium to large. To a man (and woman), they all complained of the pernicious effects of liberalization, as cheap imports from Korea, Taiwan, and China eroded their market share and dragged prices down. None of them had a very favorable outlook for their industry. (This report from good ol' IBON gives us a update of their lot, from a very, shall we say, asymmetrical perspective.)

Of course business owners will complain about competition. We should however look at the upside: cheap shoes for consumers. The economic value lost by shoe producers should be compared with the economic value gained by consumers. Without going through the details, I can assure you the loss of the former does not exceed the gain of the latter.

But then some may complain, what if imports just come in and all our local producers are destroyed? With a little reflection, one can understand that this is impossible. We cannot buy something from abroad if we have nothing worthwhile to offer foreigners. To import, we must export. End of story.

Allow access to imports, resources move towards industries in which we are truly competitive in world markets, we earn foreign exchange to actually purchase the imports, consumers gain from lower prices. To re-allocate resources, labor and capital must be removed from uncompetitive sectors, and shifted into the competitive ones. The "must" here is not done by government fiat, but by price movements - inflicting losses in one sector and opening up profit opportunities in others.

Not theory. Reality.

3 comments:

Anonymous said...

amen

F

Rizalist said...

VICTOR CORPUS recently gave a comprehensive talk (AMERICAN CROSSROAD) at a US Defense Dept. sponsored seminar Rethinking the Future Nature of Competition & Conflict Seminar Series
Video and MP3 of his whole talk are at above link. But at one point he claims China has a $300 billion TRUMP CARD in its American BOND HOLDINGS. I'd appreciate ur opinion on that and his other views. thanks

Econblogger said...

Re Vic Corpuz' analysis of China's bondholdings: Not quite clear what "abandon them" (meaning US T-Bills) means. China is holding IOUs of Uncle Sam, so it must get repayment - there's no way they can "abandon them", what give US the money?

Perhaps Corpus means China will cease purchasing US T-Bills (i.e. lending to the US). This is not implausible, particularly if the trade deficit run by the US are seen to be unsustainable. The question now is whether return to sustainable borrowing will happen quickly or slowly, and will happen by dollar depreciation, economic contraction, or increases in savings - or a combination of the three. My opinion is that Uncle Sam will take its chances, considerably loosening any traction China may get from these large IOUs.