EU Slaps High Tariffs on Chinese Steel: The Ethics of Comparative Advantage

business_ethics_highlights_2One of the persistent narratives coming out of the recent Brexit referendum is that pro-Brexit Britons are parochial cultural and economic protectionists, whereas the European Union is a model of free trade and cosmopolitan openness. The truth is a lot more complex: Smarter Brexiters favored Brexit for the opportunity it presents to boost British trade with the rest of the world. (Of course, other Brexiters do answer to description of parochial cultural and economic protectionists.) In the linked article, we see that the EU is substantially less committed to free trade than is often advertised. The EU is perhaps more accurately described as a zone of relaxed trade restrictions within an otherwise protectionist, tariff-walled garden.

Whatever the ultimate merits of Brexit or of EU trade policy, an interesting observation to make is the persistent difficulty even very smart and thoughtful people have accepting the law of comparative advantage—which Paul Krugman (playing on Daniel Dennett’s Darwin’s Dangerous Idea) has called “Ricardo’s Difficult Idea“. This difficulty of understanding makes the mutual economic benefits of free trade hard to secure, as there exists a ready political coalition – combining inefficient incumbent firms seeking protection from competition together with the economically ignorant – to block trade liberalization.

The law of comparative advantage implicates ethics because if the law of comparative advantage holds, then trade barriers are overall social welfare reducing (even if they enhance the welfare of particular incumbent firms or industries). Usually, we need a very strong moral consideration – for example, a fundamental right – to justify doing things or adopting policies that make people in the aggregate worse off. But almost certainly incumbent firms or industries don’t have a fundamental right to immunity from competition or to getting the business of domestic consumers. Consequently, trade barriers are at least prima facie unethical.

LINK: EU imposes import duties of up to 73.7% on cheap Chinese steel (by Graham Ruddick for The Guardian)

The European Union has slapped tariffs of up to 73.7% on Chinese steel after manufacturers were forced to cut jobs due falling prices and demand for the material amid an influx of cheap imports from Asia.

David Martin, Labour MEP for Scotland, said the tariffs may be “too little too late” for the UK industry.

Martin, the international trade spokesman for the Socialist and Democrats group in the European parliament, said: “The [European] commission has recognised that Chinese dumping is having a real, damaging effect on EU steel producers and the communities supported by them.

What do you think?

Donald J. Boudreaux, “Comparative Advantage
Paul Krugman, “Ricardo’s Difficult Idea
Marie-Danielle Smith, “Canada’s trade minister Chrystia Freeland walks out of EU trade talks on verge of tears,” Financial Post, October 21, 2016

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