Great food for thought as always! On using the framework of market failure for China, I have a few thoughts/questions:
1. Efficient market hypothesis would suggest that if an actor is irrational, they will be exploited by the market. So, China subsidising exports is basically a subsidy for consumers worldwide. The world can free ride on this. Now, it might harm local industries, and hence the anti-dumping measures. But should we apply the same logic within a country? If Jio drives prices very low, killing a few smaller competitors, our general intuition is not to interfere in the market (at least too early). We assume that as & when Jio starts increasing prices, new entrants will come up, seeing the opportunity. Is the difference here high entry costs on things that China dominates, so that it can drive up prices without competition from other countries?
2. Market concentration/power is addressed through regulation, which has the coercive power of the state behind it. Who will exercise coercive power over sovereign countries? Do you suggest it'll be a group/bloc of countries acting in coordination?
Good point. The world can free ride only to the extent that the other player allows you to free ride. When that actor has amply demonstrated that it will suddenly stop supplies to you for political reasons, there are serious costs to free riding. If Jio were to give things for free and then thrwaten to stop services, it will be a problem, isn't it? Also, here China is displaying several market failures in conjunction.
Some scholars in the US have proposed a multilateral trade and tariff action plan against China. But then Trump came and became the chief antagoniser.
Regarding the GDP growth rate, you are right it's fuelled by strong growth in construction and GFCF but there's also the factor that imports were down by 13% yoy on real values, even though nominal imports were up by 6% yoy. They have used some deflator for it, that I don't quite understand. I thought it might be due to the gold prices, but gold only makes up a single-digit proportion of India's total imports.
Pranay, your proposed 'China' solution is simplistic - after all the WTO existed to deal with such issues but the cooperation/collaboration mechanisms needed proved inadequate. Giving the issue a new label won't solve this issue IMO.
Rajesh, agree that the solution is half-baked because I don't know better ways of resolving the issue. But my attempt here is to frame the problem accurately. I think only then can we consider possible solutions.
How China made merry by abusing market with impunity is a fascinating read. On a separate note,I read about rare earth magnets which are not coming from China, hence India auto players are concerned. Do you think China will continue to manipulate the system ?
Thanks Gagan. It will. But that's good. China can't maintain market dominance and export controls simultaneously. As Ravi Shastri says "something's gotta give". Their export controls will cause some short term pains but will also force others to find alternatives as prices will rise.
Great food for thought as always! On using the framework of market failure for China, I have a few thoughts/questions:
1. Efficient market hypothesis would suggest that if an actor is irrational, they will be exploited by the market. So, China subsidising exports is basically a subsidy for consumers worldwide. The world can free ride on this. Now, it might harm local industries, and hence the anti-dumping measures. But should we apply the same logic within a country? If Jio drives prices very low, killing a few smaller competitors, our general intuition is not to interfere in the market (at least too early). We assume that as & when Jio starts increasing prices, new entrants will come up, seeing the opportunity. Is the difference here high entry costs on things that China dominates, so that it can drive up prices without competition from other countries?
2. Market concentration/power is addressed through regulation, which has the coercive power of the state behind it. Who will exercise coercive power over sovereign countries? Do you suggest it'll be a group/bloc of countries acting in coordination?
Good point. The world can free ride only to the extent that the other player allows you to free ride. When that actor has amply demonstrated that it will suddenly stop supplies to you for political reasons, there are serious costs to free riding. If Jio were to give things for free and then thrwaten to stop services, it will be a problem, isn't it? Also, here China is displaying several market failures in conjunction.
Some scholars in the US have proposed a multilateral trade and tariff action plan against China. But then Trump came and became the chief antagoniser.
Makes sense! Thank you for the response.
Regarding the GDP growth rate, you are right it's fuelled by strong growth in construction and GFCF but there's also the factor that imports were down by 13% yoy on real values, even though nominal imports were up by 6% yoy. They have used some deflator for it, that I don't quite understand. I thought it might be due to the gold prices, but gold only makes up a single-digit proportion of India's total imports.
Pranay, your proposed 'China' solution is simplistic - after all the WTO existed to deal with such issues but the cooperation/collaboration mechanisms needed proved inadequate. Giving the issue a new label won't solve this issue IMO.
Rajesh, agree that the solution is half-baked because I don't know better ways of resolving the issue. But my attempt here is to frame the problem accurately. I think only then can we consider possible solutions.
How China made merry by abusing market with impunity is a fascinating read. On a separate note,I read about rare earth magnets which are not coming from China, hence India auto players are concerned. Do you think China will continue to manipulate the system ?
Thanks Gagan. It will. But that's good. China can't maintain market dominance and export controls simultaneously. As Ravi Shastri says "something's gotta give". Their export controls will cause some short term pains but will also force others to find alternatives as prices will rise.