Our story begins with one 1986 tax, an “antidumping duty,” on Chinese candles. Responding to very low Chinese candle prices, the U.S. decided to protect domestic candle producers.
By 2004, the tax was huge. More than 100%. Also, candle makers received some of the tax revenue. According to one government document, they received almost $52 million during 2004.
So where are we?
We have Chinese candle dumping, a U.S. tariff and a U.S. subsidy. But that was only the beginning. In the U.S., candle makers could charge more and make more. Not subject to the tax, Vietnam and India exported additional candles to U.S. In China, candle makers started exporting “blended” candles because the tax targeted petroleum candles.
And now, during 2011, with transport costs up, and labor more expensive in the developing world, we have come full circle. Some Asian factories want to relocate in the U.S. And here, the story takes a new twist. It is not that easy. According to a WSJ article, local ordinances are delaying and increasing the cost of Chesapeake Bay Candle’s domestic construction project.
The Economic Lesson
A tax on imports, tariffs increase domestic prices. By contrast, a subsidy, a payment from the government (usually) to a domestic producer, diminishes price. Each approach, the tariff and the subsidy, enable domestic manufacturers to compete more effectively against foreign producers.
An Economic Question: Saying that worldwide efficiency is jeopardized and market decisions are distorted, believers in free trade oppose tariffs and subsidies. Using candles as an example, your opinion?
