Practise using production tables and PPCs to distinguish higher physical output from lower opportunity cost and identify each country's comparative advantage before trade.
The EU is expected to strengthen its protection against steel imports, possibly as early as October 2016, as a global trade war in steel intensifies and steel imports keep flooding into the EU.
The EU has strengthened trade defences over the past year, imposing anti-dumping tariffs on a range of steel products. These tariffs range from 18% to 25% for imports of steel from China. It is expected that these duties will be increased in October. EU data shows that 27% of steel imports come from China. The EU now has 37 anti-dumping and anti-subsidy measures in place for steel products, 15 of them against China.
China, which produces half of the world's 1.6 billion tonnes of steel, has struggled to reduce its estimated 300 million tonnes of overcapacity, but the Chinese government denies its firms are dumping by selling steel at below the cost of production. It says global steel overcapacity is due to the collapse of demand after the 2008 financial crisis. Countries from Asia to the Americas disagree with China. The United States (US) claims that the Chinese government is subsidising its steel industry and that this is a form of protectionism that gives Chinese steelmakers an unfair advantage in world markets. It has imposed tariffs of up to 450% on some types of Chinese steel. India has also imposed tariffs on steel imports from a number of countries including China, Japan, Russia, Brazil, Indonesia and South Korea.
Table 1.1: EU exports and imports of goods to and from China 2010-2015 (billions of euros)
Source: Eurostat
Table 1.2: EU exports and imports of services to and from China 2010-2015 (billions of euros)
With reference to the principle of comparative advantage, discuss whether the increase in exports of EU services to China could justify free trade in the market for steel.