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Comment by mooreds | Hacker News Reader

Actually, if the African umbrella maker could make a profit at $4, they would already be doing that, pre-tariff.

So they are more likely selling at $5.15 (or some other higher number), which means that the US consumer pays an extra 15 cents per umbrella.

That 15 cents is additional and what people refer to as a "tax", though it isn't a traditionally levied tax.

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You make the perfect point that fair trade advocates push for. China's $5 umbrellas are heavily subsidized by the government (and mostly through debt and near zero environmental controls). African umbrella companies can now sell at $5.15 without subsidies, setting the actual market value for an umbrella without the Chinese government causing an over-investment in umbrellas through the market distortion of (grossly unfair) subsidies.

> You make the perfect point that fair trade advocates push for.

Totally get it. There's a line between a country being good at making a product through "natural" causes (having a climate to grow grapes for wine) and the government subsidizing the production of wine because they want a wine growing industry. Where that line is depends on a lot of actors, but some things fall on one side of the line and others on the other.

However, for the end consumer in the importing country, they win if the government of the exporting industry wants to subsidize wine production. The consumer gets cheaper wine.

Now the argument for fair trade is that the local producers of wine will be hurt. And I get that (especially when you are talking about job losses and/or loss of strategic capability around food production or technology).

But overall the consumer in the importing country wins. If China wants to give dollar bills to the American consumer for umbrellas, why shouldn't the consumer take them?

I see what you're saying, but there's one further point you should address. It's not the Chinese free market that's giving the US consumers $5 bills for wine, it's the Chinese government. So consumers are enticed to buy wine which they might not have in a market distortion, which hurts not just US wine producers, but Chinese beer producers who compete in the tasty alcoholic treats export market. Maybe a short term gain for US consumers who enjoy their nightly reds and whites, but in the long term, market development will be unnaturally stymied.

> market development will be unnaturally stymied.

I understand where you are coming from, but markets are created by the rules of the government. Some governments (The Netherlands, CA) say that selling marijuana is OK. Some say that it is ok for some people to buy marijuana (medical) and others can't. Some US states say that no one can buy marijuana. Which is the "natural" market?

I understand that you are saying that the Chinese government is causing distortions and there is a fairer way to "trade" but that's something for the Chinese state and political actors to decide. This is the same as the way that the USA has decided that trucks are different than cars and should have a different set of import limitations--in both cases this is a political consideration.

Very good metaphor and I see what you’re saying. And I’m convinced you are correct now. The only thing I’d add is people would still have to weigh the indirect costs of the Chinese wine which might have an emotional cost from supporting economic injustice or lax environmental laws. But the data is pretty clear that nearly zero consumers care about this and would be better off with their $5 (Chinese) chuck.

Your comment just made my day. This was a perfect description.

Markets are not perfectly efficient - this is why arbitrage exists.

It likely will take some event, some slack, some inelegance for a business or entrepreneur to notice that the delta between that $5/umbrella and where they can figure out how to deliver it for $4 is worth spending time and attention on.

Markets are not perfectly efficient. Markets are perfectly imperfect.

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