Man Bites Dog

If a nation restricts imports (through tariffs and quotas) it’s easy to illustrate how domestic producers win and domestic consumers lose. Despite this, many students just can’t get over the idea that exporting is always good for the exporting country, and importing somehow reflects weakness.

So here’s an interesting case for you to consider: who’s winning and losing here?

On March 13th three of China’s biggest trading partners—Japan, the European Union and America—complained that China was exporting too little, not too much. They brought a case at the World Trade Organisation alleging that China was unfairly restricting its exports of tungsten, molybdenum and 17 “rare earths”, obscure elements such as terbium and europium, used in the manufacture of many high-tech goods including fluorescent lights.

Why would China’s trading partners complain of too many exports of some items and too few of others? Hint: think in terms of winners, losers, concentrated benefits and diffuse costs.

A bonus point on the next quiz to any student who can give a well-reasoned answer in the comments!

  1. March 20, 2012 at 12:54 am

    “China is the world’s largest producer of dysprosium and terbium, which are needed in the manufacturing process of permanent magnets utilised in electric and hybrid vehicles, as well as in other green technology such as wind turbines .”

    As the demand of these goods are gone up in recent years with the higher incentive of producing green technology. The supply side which is China ,as it is in monopoly situation has a motive to control the quantity supplied for these reasons.
    Firstly, to increase the price in global market to maximize benefits , secondly, as it is rare earth , to save its use for the domestic consumption for future .( benefits of restricting export surpass the benefits of exporting)

    Exporting other goods has effected the trading partners economy,as china has a competitive advantage in labor . other factor like currency devaluation, dumping gives trading partner incentive to file a complain in WTO.

    however,As the high tech industries are mostly located in EU, USA and Japan, use of these rare earth metal are most in those countries. so, the benefits for these country of China exporting rare earth metal is more than any other final goods.

    posted by Robin

  1. May 25, 2012 at 7:44 am

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