Will Trump and Obama Rescue U.S. Companies From American Competition?
San Francisco-based ride-sharing company Lyft recently announced that it will reduce fares for passengers in New York City by 50 percent for all non-weekend rides. To finance its rock bottom prices, Lyft will let its drivers take home 100 percent of all fares. As the New York Post described this exceptional deal, "The discounts are stepped-up versions of what Lyft has offered in the past as it spends heavily - to the tune of $50 million a month nationwide, according to sources - to gain market share against its bigger rival." The bigger rival is of course San Francisco-based Uber, not to mention medallion-toting cabdrivers in New York.
Translated for readers who likely don't require any translation, Lyft is pursuing business practices of the "price dumping" variety. It's willing to lose money now in the hope that increased market share long-term will more than make up for its low prices in the present. And while it's a fair bet that at least Uber will respond with price cuts of its own, Lyft's move could in the near-term impact the jobs and income of Uber and traditional cab drivers negatively.
Unknown yet is whether President Obama will race back from Vietnam with promises of "firm, tough enforcement" against Lyft for "dumping" its service on the market. Similarly unknown is if Donald Trump will make Lyft's actions a campaign theme whereby more established ride services (you know traditional cabs, and ride-sharing market leader Uber) are being "crushed" by cheap competition. Time will tell.
One thing we know for sure is that the millions of consumers who access auto-transportation on a daily basis will be the certain beneficiaries of Lyft's decision. While the jobs and income of cab and Uber drivers will potentially be imperiled by Lyft's aggressive pricing, the number of people who will benefit certainly dwarfs the small amount of drivers who stand to lose. That's of course the beauty of free trade and competition. It means that consumers benefit from higher numbers of businesses fighting like mad to serve their needs; frequently at lower prices.
All this requires mention in light of steel production in China so massive that quite a bit of it has been reaching the United States at very low prices. It turns out President Obama doesn't like it when foreigners compete to serve our needs, so his "firm, tough enforcement" will actually have a Chinese address. But as the Lyft example hopefully reveals, the American people will be the victims of Obama's decision to quadruple the price of China-produced steel meant to reach the U.S. No doubt Trump supports Obama's decision.
City Journal's Nicole Gelinas oddly agrees with the President and the man who hopes to replace him in the White House. Even though hundreds of millions of Americans would benefit from lower steel prices, along with millions of American businesses that benefit from lower input costs, Gelinas writes in the New York Post that "American and European steel mills simply can't compete. Over three years, the American metals industry has lost 21,500 jobs."
Okay, to allegedly protect 21,500 jobs (can Gelinas, Obama and Trump really believe that a global competition for that which is prosaic wouldn't eventually render U.S. steel work redundant as is?) Gelinas supports Obama's tariff that will render staggering multiples of Americans worse off. As she explains it, "The Obama administration has made a credible argument that China is flouting restrictions on "dumping" (exporting products below what it cost to make them) and "state supports" (propping up money-losing companies with government funds)."
Applying Gelinas's reasoning more locally, Lyft is similarly "flouting restrictions" as evidenced by its eager willingness to lose money in order to gain market share. Can she, Obama or Trump really believe that the economic outcome for the U.S. will actually be better if only American firms are allowed to dump, while we wall off the U.S. economy to global competition? Lest we forget, an economy is just a collection of individuals, and as individuals we're generally better off when we have more producers, not less, competing to serve our needs at lower and lower prices.
Gelinas's response to what she deems "illegal trade" is one of politics whereby "few mainstream candidates this year were willing to say the obvious: It's not really free trade when one large country does not, in any way, have a free market economy." The country that doesn't have a free market economy, if Gelinas is to be believed, is China.
Interesting there is that as of 1978, Shanghai citizens could count the skyscrapers dotting the city's skyline with two hands. As of 2006 the city had 3,800 of them, and today the number is easily double that. Naturally this doesn't begin to tell China's amazing story of growth as any visit to the country reveals. China's cities, rich and poor alike, are teeming with workers feverishly putting up buildings as the Chinese pursue the growth that they were deprived of when the country's communist leaders cruelly forced collectivism on the people. Contrary to the picture painted by Gelinas, previously wasn't a "free market economy," but as the stunning growth there since the late ‘70s makes rather plain, it's quite the free market now. How else can all this growth be explained?
Trump and others would say "currency manipulation" and "easy money" from central banks, and while both explanations point to a total lack of understanding about what credit and money are, if they're truly the source of China's stupendous rise then why don't Haiti, Honduras, and Zimbabwe simply follow China's lead? The Chinese are obvioulsy doing a lot right as evidenced by all the companies from the free market U.S. working relentlessly to achieve a commercial presence there.
Furthermore, Americans are in no position to be talking about Gelinas's definition of "free markets" in the first place. Lest we forget, the U.S. Treasury's devaluation of the dollar beginning in 2001 led to soaring oil prices that turned the U.S. into a size producer. Yet as evidenced by all the layoffs and bankruptcies in Texas (Eagle Ford) and North Dakota (Bakken), the oil extracted from each was only economical to unearth insofar as the dollar was very weak. If China is dumping to the employment detriment of U.S. steel producers, can't something similar be said about the U.S. and oil? Does anyone remember the bailouts back in 2008 of U.S. carmakers and banks to the detriment of foreign and domestic competitors? By Gelinas's strict definition, the U.S. economy similarly cannot be described as free market, and it surely should be fingered for engaging in what she describes as "illegal trade."
Gelinas lauds Trump for saying back in January that "you can't deal in China without tariffs," yet as this alleged free marketeer has also said, as President he'll pursue devaluation of the dollar given his utterly incorrect belief that devaluation is what has made China and Japan (actually, each currency has risen against the dollar in the 21st century) globally competitive on the trade front. Needless to say, Trump has no leg to stand on when it comes non-market policy ideas meant to allegedly make U.S. producers more competitive.
But that's really not the point. Just as Lyft's price dumping will lead to much better and cheaper transportation for millions of Americans, so does global competition for the dollar of the American consumer redound to the U.S. population in grand ways. An economy is once again just a collection of individuals, and as individuals we benefit when producers fight voraciously to push down the prices for the goods that we buy. We consumers benefit even more when producers "dump" their product onto the market, as Lyft is happily doing right now.
