SA consumers are better-off with cheaper clothes

South African clothing manufactures continue to lobby for increased protections (usually in the form of tariff protection) in order to shield domestic manufactures from foreign competition (usually China). The SA clothing manufactures argue that the playing field is not level because the Chinese government uses Chinese taxpayer’s money to subsidise their clothing manufacturers. Let’s assume for a moment that the Chinese government does indeed subsidise its clothing manufactures. Should the SA government retaliate by subsidising SA clothing manufactures?

The SA government should not burden our consumers and taxpayers with tariffs and taxes in an attempt to change an economic imbalance by transferring the costs from one set of citizens to another, especially when it is an imbalance that will probably require the cost transfer to continue indefinitely. Indeed, SA is in no position to give special privileges to certain manufacturers. Governments only have three sources of finance: taxpayers, the printing press and borrowing. Tapping each of these sources has its own pitfalls. Taking increasing amounts of money from taxpayers penalises productive and efficient entities in the economy. Resorting to the printing press fuels inflation (which disproportionately affects poor people). And borrowing money has long-term debt repayment implications.

Should SA consumers be concerned that the Chinese government are conferring these benefits on their manufactures? If Chinese taxpayers are subsidising SA consumers of Chinese manufactured garments, the majority of South Africans benefit from low-cost clothing manufactured in China and thus should not be concerned with this cross-subsidy. The money people save as a result of being able to access the cheapest goods produced throughout the world allows us to invest in companies that are efficient. This investment increases the productive capacities of successful companies and raises the real wages of employees employed in those sectors. In other words, what consumers do not spend on clothing they have available to spend on other things, which creates jobs in other areas of the economy.

Author: Jasson Urbach is an economist with the Free Market Foundation. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Policy Bulletin/ 12 April 2011