Gareth Morgan, Director of Gareth Morgan Investments
The decision to impose a dumping duty on shoes is economic illiteracy at its best.
For the purposes of illustration assume the “offending” shoes are being sold here for approximately zero cost. Who’d argue that NZ producers would find it difficult competing. But as long as there are plenty of suppliers of like product around the world who would readily supply us with same product at prices insignificantly above zero, who cares ? The only defensible rationale for stopping such imports is if their tenure is very short term, with a purpose to shut down any domestic competition, and then extract monopoly profits. Apart from this case it matters not whether the goods are low cost or being dumped. But in the case of low value shoes there is no evidence of this. Rather, the most sinister interpretation of Chinese production is that they are supplying perhaps below cost. We shouldn’t care what their costs are. The only concern our policymakers should have is whether continuing supply of cheap shoes is likely. Given the propensity of the Third World to expand shoe production this likelihood is extreme.
Should we then be penalising NZ households via the cost of shoes, simply to have New Zealanders competing in low value added, Third World products. To the extent the purchasing power of the average household budget is reduced by government-inspired price hiking, economic welfare of shoe buyers is reduced. The benefit of sustaining low value jobs at higher than competitive wage rates is a case of straight subsidisation by the majority of households. Welfare beneficiaries created in shoe factories and subsidised profits for factory owners is the result. Without proof that net national economic benefits exceed the alternative of paying the dole, government action is unadulterated interventionist recidivism.
Consider the alternative: Cheap shoes, the consumers’ preference, are available. The household dollar goes further and economic welfare is improved. Low value NZ shoe workers are either sacked or have to lower their charges. Alternatively they could retrain for higher skilled work. In the absence of higher skilling, then lower labour prices will make viable operation of other low value added industries and Third World type employment opportunities. There is an abundance of evidence that industries whose protection has been stripped are through necessity, moving up the value chain, improving international competitiveness of their product and creating employment.
In Australia, the head of Toyota recently admitted protection used to be too high, but zero tariffs are too low. His contribution to the arguments for lowering tariffs when they were “too high” was notable by its absence. The credibility of those with a naked interest in subsidy by others is piteous. They have never been able to mount credible argument for what the optimal tariff is and why. The reason is simple – they can’t. We rely on the economic literacy of policymakers to recognise that fact and accelerate, not impede, the achievement of an economic environment maximising international competitiveness. Only then will employment gains be made.