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NSW Government bans Chinese imports

Colleague JL pointed out to me this stupid ban imposed by the NSW Government on the procurement of Chinese products by government agencies.  The NSW government has the obligation to purchase goods and services at the cheapest possible cost.  This ban disadvantages NSW taxpayers by wasting their hard-earned tax dollars and threatens Australia generally by the prospect of retaliation from China.

Australia’s most hopeless state government is digging itself yet another grave. Good riddance when these Labor incompetents are kicked out of office.  The order has the endorsement of Premier Nathan Rees on the grounds that it supports Australian jobs and is naturally supported by the neanderthal trade union dummies – these destroyers probably provided the stimulus for this policy.

The ban defies basic trade theory and the principle of comparative advantage on which all rational economic discourse is based.  Rather than a ban on imports a clearly superior policy would be to provide labour in industries with employment subsidies. This policy while better is clearly also sub-optimal.

7 comments to NSW Government bans Chinese imports

  • Uncle Milton

    Harry, you are right for the wrong reasons.

    The ban does not defy basic trade theory and the principle of comparative advantage. Trade theory does not say that a preference shift towards locally made goods (which is what Rees has done) creates welfare losses. The theory says that, with preferences taken as given, trade distorting tariffs or other barriers creates welfare losses.

    But that doesn’t mean that the policy will have its intended effects. A demand shift from foreign to locally made products will just appreciate the (real) exchange rate, with a consequent loss of competitiveness for exporting and import competing industries. There will be no net gain in output or employment. (There’s a small qualifier in that – the demand for NSW production might go up or down a bit, with the balance borne by the other states. But this is second order.)

    The real cost to the policy is the demonstration effect that the NSW government has abandoned even the pretence of good policy in favour of cheap populism.

  • hc

    A preference shift Uncle Milton? So the NSW government seeks more ‘Australianness’ in its procurements? I think a more accurate description would be an infinite tariff imposed on imports from China by Government purchasers in order to meet directives from the Labor Party’s industrial wing.

    I agree with your real exchange rate appreciation argument.

  • Uncle Milton

    Harry, I think it is, in a sense, more Australianness. They prefer Australian made because that is supposed to be good for Australian jobs.

    I am also struggling to think of things that governments buy from China that we make ourselves. So the whole thing could be a stunt.

    I also don’t think it’ll happen. If he hasn’t already, Rudd will be on the phone to Rees telling him a few facts of life, such as: Australia and China are right now negotiating a free trade agreement and this just might derail those negotiations, and if Nathan stuffs it for Kevin, then Kevin will cut him off at the knees. The Chinese are already pissed off by being out-smarted on the Rio deal. Rudd the diplomat won’t be too keen to have a state government kick them when they are down.

  • Matt C

    Milton, how is it a preference shift? They are explicitly giving domestic products a 20% cost advantage. That is a tariff without the revenue.

  • Uncle Milton

    Matt, it is not a tariff because the Chinese products will still be available to everyone else, tariff-free (or without any extra tariff, as the case may be). It is a preference shift because it is one buyer, albeit a big one, who is switching from imported to locally made products, without being induced to do so by a change in relative prices.

  • derrida derider

    A “Buy Australian” policy would be bad enough. But a discriminatory ban on one country’s goods really is so incredibly stupid that it beggars belief. Especially if that country buys most of your exports.

    I predict that this year’s negotiation between NSW coal producers and Chinese buyers will strangely, for no apparent reason, prove much more difficult than negotiations with other coal producers. The Chinese are a tad more subtle in these things.

  • Uncle Milton

    “a discriminatory ban on one country’s goods”

    This is the kind of action where you get taken to the WTO, and lose. It must violate one of the GATT articles, surely.

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