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Reciprocity: That's The Name Of The Game

Jeremy Hetherington-Gore Unleashed
01 January, 2010

Reciprocity. It sounds so fair and reasonable, doesn't it? Argentina is applying the principle in its new border tax: if my country charges Argentinians 83.795 sea shells for a visa, then that's what Argentina will charge me to go there.

Sorry; wrong! Go the the bottom of the class. The Bible's Old Testament is big on reciprocity: 'an eye for an eye and a tooth for a tooth'; but Jesus knew better, saying that you should 'turn the other cheek'.

Reciprocity is what leads to trade wars and protectionism. You put a duty of 50% on my bananas, so I put a duty of 50% on your beef, and before you know it, trade volumes have slumped away to nothing. These sort of duties are especially popular – and damaging – in the EU, where they are frequently termed 'countervailing' duties. They are closely related to 'anti-dumping' duties, which should really be called anti-consumer duties.

If another country, or a manufacturer in another country, wants to sell off its surplus production at cost into my country, in order to help its cash flow, then the right response is for my country to say thank you very much and allow consumers (or manufacturers wanting that type of input) to take advantage of the lower prices that result. But of course that isn't what happens: the over-priced and usually highly unionized firms in my country which are damaged by the extra competition go wailing to the government (or the Commission in the case of the EU) and demand an anti-dumping duty to set them right. And they often get it, thus putting off the day when they might have to do something about their antiquated methods and under-skilled work-force.

'Social dumping' and its cousin 'fair trade' are other forms of reciprocity and are equally damaging to long-term competitivity and the interests of consumers. 'Social dumping' is when your country exports products to mine which have been made by workers who don't have the gold-plated working conditions that make my country uncompetitive. Taken to its logical conclusion, the principle of fair trade would ensure that all manufacturers around the world are equally uncompetitive, and indeed this is what its woolly-minded proponents do actually want. Unfortunately for them, that's not how human nature or the markets work.

There are better ways of protecting the interests of young children and oppressed working populations than with the sledgehammer of reciprocity, although they require long-term effort and investment on the part of developed countries. But it is seldom in the interests of politicians to look to the long term, and consumers are not educated to understand their own best interests – they are economically illiterate in most cases – so that the electorally popular sledgehammer continues to be used, to everybody's disadvantage other than the narrow mercantile class that called it down.

Sorry to be a bore. I promise not to preach this sermon again for another 12 months!


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Jeremy Hetherington-Gore Unleashed

Jeremy tackles the difficult issues head on!

 

 

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