Understand economics from scratch

Chapter 28 What Does Currency Devaluation and Appreciation Mean——International Trade Economics You Must Understand (3)
Fourth, the result of dumping often causes damage to the importer's economy or the interests of producers, especially predatory dumping disrupts the importer's market economic order and brings a devastating blow to the importer's economy.

Commodity dumping is usually carried out by large private enterprises, but with the development of state monopoly capitalism, some countries have set up special agencies to directly dump commodities abroad.Commodity dumping is generally divided into three situations:
(1) Accidental dumping: because the sales peak season has passed or the company has changed to other businesses, the "surplus products" are sold abroad.

(2) Intermittent dumping: dumping in foreign markets at a price lower than the market price or even the cost, and raising the price after monopolizing the market.

(3) Long-term dumping: the product is sold at a lower price than the domestic price, but the export price is higher than the production cost, and economies of scale are used to expand production and reduce costs.

WTO: coordinator of world trade

It is said that an American investor went to Chongqing to investigate the investment environment. He asked the local officials three questions: "First, I want to know what kind of policies I can enjoy when I invest in your place? Second, what will I do when I invest here?" What kind of risks do I encounter? Third, I want to know how I will die if I die (that is, the company goes bankrupt) after I have made the investment and put it into production?"

The local official replied: "When you invest in us, I will give you all the preferential policies that other places in China have, and I will also give you what others don't have." To the second question, the local official said, "Of course there are investment risks, but Your risk is my risk, your difficulties are my difficulties, and all risks can be solved for you, so you should invest steadily.”

The American said: "Please tell me the third question, if my investment dies here, how will it die?"

The official said with a humorous smile, "Don't worry, you won't die. If you shoot me, I'll block the hole for you. If you jump off a building, I'll jump first. How can I let you die?"

That evening, the American replied, "I can't invest here."

The local official asked in amazement: "Why?"

The Americans said: "You can give me policies that others don't have, and you can also give others policies that I don't have. This is against international norms. Besides, according to international rules, I don't know how I will die, and I don't know how to live. How do I invest? So I can’t take my money out.”

This story reflects one of the most cherished aspects of international economics: fairness.Therefore, for the sake of fairness, an organization—the World Trade Organization (WTO for short)—was created to mediate unfair phenomena and disputes in the world economy and trade.China joined the WTO in 2001. Long Yongtu, secretary-general of the Boao Forum, once joked: "When a big man and a small man have a conflict, the big man likes two people to solve it face to face, and pull the small man to a dark corner to single out. Give me a good beating. The little guy hopes to take the conflict to a place where there are many people and powerful people, and hope that someone will uphold justice, please tell me some reason."

WTO is a permanent international organization independent of the United Nations. It officially started operation on January 1995, 1, and is responsible for managing the world economy and trade order. Its headquarters is located on the banks of Lake Leman in Geneva, Switzerland. On January 1, 1996, it formally replaced the Provisional Agency of the General Agreement on Tariffs and Trade (GATT). WTO is an international organization with legal person status, and has higher authority in mediating disputes among members.Its predecessor was GATT established in 1.Compared with GATT, WTO covers trade in goods, trade in services, and trade in intellectual property rights, while GATT only applies to trade in goods. Together with the World Bank and the International Monetary Fund, the WTO is called the "three pillars" of today's world economic system.At present, the trade volume of WTO has accounted for more than 1% of world trade.

The purpose of WTO is: to promote economic and trade development to improve living standards, ensure full employment, ensure real income and effective demand growth; to rationally utilize world resources and expand commodity production and services in accordance with the goals of sustainable development; to achieve mutual benefit agreement to substantially reduce and eliminate tariffs and other trade barriers and eliminate discriminatory treatment in international trade.

The basic principles of WTO are derived from the basic principles of GATT with necessary supplements and modifications.They originate from the 1994 GATT, the General Agreement on Trade in Services and a series of agreements reached in previous multilateral trade negotiations.The most important principles are as follows:
(1) The principle of most-favored-nation treatment: Most-favored-nation treatment refers to the preferential treatment given to any third party by one contracting party now and in the future, and is also given to all contracting parties.In international trade, most-favored-nation treatment refers to the concessions, privileges, preferences or immunities given to any third party by one party to a bilateral or multilateral trade agreement in terms of trade, tariffs, shipping, and legal status of citizens. Contracting parties can also get the same treatment.

(2) The principle of national treatment: National treatment means that in a trade treaty or agreement, the contracting parties guarantee each other's natural persons (citizens), legal persons (enterprises) and merchant ships to enjoy the same rights and interests as natural persons, legal persons and merchant ships in their own country. treatment.It is to treat foreign products as domestic products and treat foreign companies as domestic companies.Its purpose is to fair competition, prevent discriminatory protection, and realize trade liberalization.

(3) The principle of non-discriminatory treatment: The principle of non-discriminatory treatment, also known as the principle of non-discriminatory treatment, is one of the most important principles of the WTO.It stipulates that a party shall not discriminate against other parties when implementing certain restrictive or prohibitive measures.The principle of non-discriminatory treatment requires each contracting party to give equal treatment to other contracting parties in any trade activities, so that all contracting parties can trade under the same conditions.

(4) The principle of reciprocity: Reciprocity refers to the mutual or corresponding transfer of trade interests or privileges between two or more countries.The principle of reciprocity is reflected in the reduction of tariffs, transportation, and non-tariff barriers and the mutual protection of intellectual property rights.

(5) The principle of tariff reduction: Tariff and non-tariff measures are two common ways for the state to control import and export trade.Compared with numerous non-tariff measures, the biggest advantage of tariffs is that they are open and measurable, and can clearly reflect the protection degree of tariffs on domestic industries.In the WTO, tariffs are the only legitimate form of protection.The continuous reduction of tariffs is one of the most important principles of the WTO.At present, the overall level of tariffs is around 4% in developed countries and around 10% in developing countries.

(6) The principle of canceling quantitative restrictions: Quantitative restrictions are the most commonly used method in non-tariff barriers. The WTO advocates trade liberalization and the removal of any non-tariff barriers.The main forms of quantitative restrictions are: quotas, import licenses, automatic export restrictions and prohibitions.

(7) Principle of transparency: Trade automation and stability are the main purposes of WTO, and the realization of this purpose depends on enhancing the transparency of trade regulations and policy measures.Therefore, the WTO stipulates the principle of transparency that must be disclosed for the trade laws, regulations, policies, decisions and rulings of the parties.Its purpose is to prevent unfair trade between contracting parties.The principle of transparency has become a basic principle that all parties should abide by in trade in goods, technology and services, and it involves all areas of trade.

Hot money: speculative short-term capital

In the U.S. government in 1848, professional circus clown Dan Rice used the music of band floats to draw attention to his campaign for Zachary Taylor.This move succeeded in Taylor's publicity, and more and more politicians turned to Taylor for their own interests.By 1900, when William Jennings Bryan was running for President of the United States, band floats had become an integral part of his campaign.As a result, a term has emerged in the academic circle - the herd effect (also known as the band float effect).Because the herd effect has also been fulfilled among civilians: during the presidential election, people participating in the parade can easily enjoy the music in the parade as long as they jump on the floats carrying the band without walking. Therefore, jumping on the floats represents "Into the Mainstream".As a result, more and more people jumped on the float.

This effect is called "hot money herd effect" in the capital market, which refers to a typical abnormal situation of arbitrage speculation - affected by the herd effect, when the number of people buying a commodity increases, people's preference for it will also increase.This relationship affects the phenomena explained by the theory of supply and demand, which assumes that consumers will only buy things based on price and their own personal preferences.For example, in the stock market, if many people are buying a certain stock, more and more people will buy it.Therefore, in the securities trading market, the herd effect can make a security rise to an unreasonable level in a short period of time.The capital that promotes the sharp rise of securities in the short term is speculative short-term capital, that is, hot money.

Hot money, also known as hot money or speculative short-term capital, refers to short-term speculative funds that flow rapidly in the international financial market in pursuit of the highest return with the lowest risk.Hot money has the characteristics of "four highs": high yield and risk; high information and sensitivity; high liquidity and short-term; high fictitious and speculative investment.

The speculative movement of international short-term funds is mainly to avoid political risks and pursue the interests of exchange rate changes, important commodity price changes or international securities price changes, while hot money is a speculative behavior that pursues the interests of exchange rate changes.When speculators expect the price of a certain currency to fall, they sell the forward foreign exchange of the currency, hoping that after the expiration in the future, they can buy a lower spot foreign exchange to earn the benefit of the exchange rate difference.Since this is purely a speculative behavior of buying and selling short, it is different from arbitrage.In the foreign exchange market, since such speculative funds are often converted from currencies with a tendency to depreciate into currencies with a tendency to appreciate, this increases the instability of the foreign exchange market. Volatility or the imposition of foreign exchange controls can prevent the flow of such speculative funds.

There are more than ten channels for hot money to enter, and the main channels are as follows:
First, false trade.In this channel, domestic enterprises and foreign investors can join forces to introduce overseas funds through inflated quotations, advance payment, and forged supply contracts.

Second, capital increase and share expansion.Existing foreign-invested enterprises apply for capital increase on the basis of the original registered capital on the basis of expanding production scale and increasing investment projects, etc. After the funds come in, they actually go to other places for arbitrage; when they want to withdraw after the settlement of foreign exchange arbitrage, they only need to find another excuse Cancel the original project contract, so that hot money can be easily transferred in and out.

Third, currency circulation and conversion.There is a jingle in the market that can explain this way of hot money inflow: "Hong Kong dollars are not convertible, but RMB is convertible, and the two places are the same as they are convertible."During the inspection, the State Administration of Foreign Exchange found that through this method of currency conversion and cross-regional operations, a large amount of hot money "freely flows in and out".

Fourth, underground banks.Underground banks are the fastest way for foreign capital to enter and exit.The operation of many underground banks is like this: Suppose you send money to a designated local account in Hong Kong or somewhere overseas. After being confirmed, the underground bank in the Mainland will naturally open an account for you and convert your foreign currency into Renminbi.There is no need for foreign currency to come in at all.

(End of this chapter)