How can US companies compete against subsidized Chinese companies?

Economics Economics Questions
1

Let’s say companies, A, B, C are US companies in the same industry. Companies X, Y, Z are Chinese companies in the very same industry as A, B, and C.

The U.S. has more of a free market. We (Austrians) are usually critical of government intervention, subsidies. In this case, firm A is subsidized, while firm B and C are not. We would be critical of the subsidized company A.

All of the Chinese companies, X, Y, Z are all subsidized by the government. X is directly subsidiezed with the Chinese govenrment granting money for operations. Y is indirectly subsidized, where worker housing is funded by the government. Z is indireclty subsidized with the government buying down the price of the good for export.

X, Y, and Z are able to produce goods cheaper and faster than A, B, and C because of this subsidization.

How can US companies compete against subsidized Chinese companies?

2

I don’t know if this is from a theoretical perspective, but since the government is diverting resources away from where the market wants therm, the company that is competing against the subsidized Chinese companies could enter the sector from which the resources were diverted.

3

You could just take advantage of the low prices. You can’t subsidize everything…

4

in a search engine type: site:mises.org rothbard economic inequality

5

Let’s take it to an extreme. If manna started falling from heaven, giving everyone free delicious healthy food every single day, how can US farmers compete? What is the correct economic response to such an event?

6

Agreed, we have to rely on the fact that “with every grant of complete security to one group the insecurity of the rest necessarily increases. If you guarantee to some a fixed part of a variable cake, the share left to the rest is bound to fluctuate proportionally more than the size of the whole. And the essential element of security which the competitive system offers, the great variety of opportunities, is more and more reduced.” (Road to Serfdom, 153) When the Chinese narrow their range of opportunities by subsidizing a certain sector, American entrepreneurs should aim to fill the winnowed gaps of China’s production. We can always beat them at something, as long as they tend towards their artificually secure industries. It is unfortunate, however, that the American entrepreneur should have to respond to the whims of Chinese governmental policies. This is why nationalist interventionism leads to multinational conflict.

7

How can India compete with the wheat we’re giving them for free as foreign aid? They can’t, and why should they? If China wants to give foreign aid to the US, let them.

8

Thanks all for the input. Yes, this is a theoretical perspective.

This is what I have understood from the conversation thus far:

@Daniel, @Ryan: The US companies should not try to compete, but rather find the area of the market of which it can. Granted, this is much easier said than done, if the company is told for one industry and not for another.

@Sieben, @EmperorNero: I don’t think taking advantage of low prices answers the question directly. Granted, it may be a good economic move for a third party not in the industry. The US should accept such actions as it benefits us with lower prices.

@Smiling Dave: Thanks for the extreme example.

Lingering question(s):

@All: To play devil’s advocate to Sieben and EmperorNero’s point, why not just have the US subsidize the same exact industries so we (the consumer) can benefit from lower prices directly?

9

why not just have the US subsidize the same exact industries so we (the consumer) can benefit from lower prices directly?

where is the money coming from/

10

One could argue that it is being paid for by maybe a fraction of a penny from each taxpayer. Thus, food is several cents/dollars cheaper, the company being subsidized is expanding/creating more jobs, and all is well. Thus, says the interventionist, the economy (or rather, the local economy) has been improved by an utterly insignificant increase in taxes. You could say that the money could have been spent better in another way, and you would be correct, but the amount lost per person makes practically no difference to what they spend and it is doubtful enough people would pool their fraction-of-pennies together to buy anything of note.

(Playing the statist is fun!)

11

“where is the money coming from/”

for the sake of argument, assume it comes from the us counterpart of how the chinese do it?

12

“(Playing the statist is fun!)”

Thanks for arguing this position.

13

“@Sieben, @EmperorNero: I don’t think taking advantage of low prices answers the question directly. Granted, it may be a good economic move for a third party not in the industry. The US should accept such actions as it benefits us with lower prices.”

To provide a related example to this, think of Universal Health Care (not necessarily ObamaCare), i.e. subsidized health care. Shoudn’t we accept such subsidizations because it benefits us with lower prices? (In reality UHC, in its current implementation, makes costs and prices go up, but just citing this example for the sake of argument.)

John_James 14
16

Well, by definition, they can’t subsidize EVERYTHING, so there’s always going to be industries left for us to enter.

But its just like they have comparative advantage. Except instead of being really good at manufacturing cars they have slaves.

This isn’t really the same kind of subsidy… Its on the consumer side, rather than the producer side. There’s no one that the subsidy is trying to “outcompete”.

17

Assume the subsidy for UHC is on the producer side. Shoudn’t we accept such subsidizations because it benefits us with lower prices?

18

That’s the part of the subsidy you see. What part don’t you see? Subsidies means higher taxes on the chinese, so it reduces their ability to buy american products. Whether we should “accept” it depends on whether we like having proxy-slaves.

19

“Rip Off of Full Free Trade Advantage”

One may want to challenge the egalitarian emphasis by proponents of http://en.wikipedia.org/wiki/Purchasing_power_parity.

One may presume that imports to the US, which were created relatively inexpensively, are marked up according to the one price index.

One may presume that exports from the US, which were created relatively expensively, are marked down according to the one price index.

And, from the transactions a trade balance is established by bureaucratic manipulation.

Suppose china maintains an artificially lower value for its currency, then its GDP and price index are also artificially low, which means that there is a greater markup on its imports to the US, while there is a larger mark down of US products; hence, the ratio of imports to exports as a balance of trade is a concern.

Reasonably, the US could maintain a policy of zero balance trade with china, which means that the total of all imports after mark up should not exceed the total of all exports after mark down.

If china is subsidizing a lower price for its exports, the US may do the same, but a zero balance of trade could force the chinese to accept more US goods.

Some have proposed that there is a plan to develop stagnant economies to enable them as future trade partners.

Whatever the plan may be, the PPP schema does not allow US peoples to purchase products inexpensively (medications, etc.), thereby exacting greater advantage from its wealth.

20

“Foreign Divide And Conquer”

http://en.wikipedia.org/wiki/Neomercantilism

Neomercantilism is a term used to describe a policy regime which encourages exports, discourages imports, controls capital movement and centralizes currency decisions in the hands of a central government. The objective of neo-mercantilist policies is to increase the level of foreign reserves held by the government, allowing more effective monetary policy and fiscal policy.

…

Its policy recommendations sometimes echo the mercantilism of the early modern period. These are generally protectionist measures in the form of high tariffs and other import restrictions to protect domestic industries combined with government intervention to promote industrial growth, especially manufacturing. At its simplest level, it proposes that economic independence and self-sufficiency are legitimate objectives for a nation to pursue, and systems of protection are justified to allow the nation to develop its industrial and commercial infrastructure to the point where it can compete on equal terms in international trade. In macro-economic terms, it emphasizes a fixed currency and autonomy over monetary policy over capital mobility.