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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (5517)	10/17/2002 1:16:07 PM
From: ahhaha	Read Replies (1) \| Respond to of 24758

You impose a tariff or tax, the price of the import has to be priced down in order to sell in the US. Foreign producers have less demand for their marginal output because US consumers of steel find US production cheaper. Foreigners already have too much capacity. They can't sell their marginal supply, so they must reduce it. This can all happen if the price outside of the US doesn't change, but abstractly, one would be right to use the abstract usage, "priced down". This brings the final price they get down below cost and the importing companies are forced to shutter capacity. Whereas this is an implied result of the recognition that they must reduce marginal supply, there is no implication that the alternative price they get from other steel consuming nations is below a given nation's price to produce. The US as a big consumer has interrupted the pricing mechanism, so no one knows where the equilibrium price lies among foreign producing and consuming nations. (unless they can get their government to subsidize the industry). Not possible if they wish to comply with the ITC which they do because the ITC has been the body enabling their dumping strategy to work. I don't know how this helps the demand side, but it gets the supply side in line. To get the "supply side in line" is equivalent to helping the demand side by doing what you suggest, shutter or eliminate capacity. Then demand and supply can reach equilibrium. Over time as the world grows and at equilibrium new demand coming from that growth stimulates more output without change in price. In a free market price won't hold an instantaneous rise with rising demand. Capacity or utilization rises. Then price falls. Price only rises persistently when there's some constraint on capacity. Right now there is an artificial constraint on capacity, too much capacity which isn't being allowed to fall because the US hasn't allowed the theoretical price to fall. The theoretical price would fall if the actual price was jacked up far enough! So the answer is to introduce an artificial reduction of capacity. When the US raised tariffs it did exactly that. Friedman and Laffer both ignored that subtlety when several months ago in SF they didn't agree with Bush imposing the tariffs. A little expediency doesn't need to undermine principle. After all, Friedman thinks Japan can print money to get out of pseudo deflation, and that move is purely expedient. Although you have to wonder if it simply forces companies who use steel to import steel incorporated in a finished product. ie. push auto manufacturing overseas where they can buy steel with low price and no tariff and import the finished cars. You're saying here that an ever declining proportional use of steel in construction is worth all the cost to build abroad? There is still a substantial labor cost mismatch that will tend to hold over the long term that precludes this from happening. Things will change though as other nations achieve labor price parity with us.