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Guaranteed to infuriate the Chinese - By Kitty Miv, Editor

Kitty Miv, Editor
08 March, 2012

Will they never learn? The US Congress, which seems lately to have been incapable of agreeing on anything, even the most essential piece of no-brainer legislation such as extending R&D deductions, has just jumped into action almost unanimously in order to pass an outrageously protectionist piece of trade legislation which is guaranteed to infuriate the Chinese and will do nothing for America except to add another layer of feather-bedding to various sets of already molly-coddled workers in dying industries.

There is an iron rule in politics, which is that in pre-election periods, all legislatures become fixated on the ballot box, and the resulting collective mania manifests itself in all kinds of crazy pronouncements and wonky laws which would never normally see the light of day.

It is one of the most elementary principles of international trade that anti-dumping and countervailing duties (the subject of the new law) are counter-productive and damaging to the interests of the nation that imposes them. If your trading partner is silly enough to subsidize the production of clothing rivets and make you a present of rivets at half their actual cost, you should smile sweetly, say 'thank you very much', and use the cheap rivets to reduce the cost of the jeans you would like to sell in trendy Beijing boutiques. That foreign government has taken money from the pockets of its own taxpayers and put it into your pocket instead.

Does it occur to these legislators that the R&D deductions, which everyone knows they will extend sooner or later, are no more than a subsidy to hi-tech gizmos manufactured under license in Shenzhen and sold in the mobile store alongside the boutique in Beijing? How would it be if the Chinese were to impose a extra sales tax on those devices because of the unfair competition from California? There would be outrage in Washington, of course. But the Chinese won't be so silly; and anyway they don't have elections in China to turn legislators into lunatics.

What is most ironic about this piece of US legislation is that it has emerged in the very same week that President Obama presented his trade policy agenda to Congress, full of pious statements about opening up international markets, the virtues of trade, blah, blah, blah.

But there's an election, and the purpose of the countervailing duties legislation, which by the way upsets a thoroughly correct decision of the Appeals Court to strike down thirty or so existing coutervailing duties, is of course nothing to do with trade, it is there to win votes from workers in yesterday's jobs. Annoying China is just collateral damage. 'Stuff happens.'





About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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