In today’s Shenzhen Daily there was an article about the USA imposing duties on steel pipes imported from China. In turn, China filed a complaint with the WTO. Undoubtedly China will eventually impose retaliatory duties of some kind on some U.S. goods.
The story made me think about the concept of “dumping.” What is it, who benefits from it, and who suffers?
As I understand dumping the practice of selling goods below cost to increase market share. Sometimes government subsidize dumping for political reasons, mainly to stimulate business and keep unemployment low.
So why is dumping bad? I guess it’s bad if you are employed in an industry that is selling good at a fair price while you competition is selling the same goods below their cost. The steel pipe workers in the USA now have to worry about loosing their jobs. But how many people is that? Very few, I suspect.
Who benefits from dumped goods? Besides the workers employed in the dumped industries, the people buying the dumped goods benefit. Every person who buys a product containing dumped steel pipe benefits because the product costs a bit less than it would otherwise. Thus raising their standards of living a bit.
Dumped goods coming on the market are not unlike when Wal-Mart moves into a community. The small businesses who can not compete will close, putting their employees out of work. In return, every person in that community will benefit from shopping at Wal-Mart because their money will go father, thus increasing the standard of living for its customers. Even the newly unemployed will find the unemployment checks go farther at Wal-Mart than they would have if it had not moved in.
I have seen the argument made that product dumping is a ploy to run the competition out of business. Once the competition is gone, the dumper will have a monopoly and raise its prices to ultra high levels. This argument doesn’t make sense.
If a steel pipe producer goes out of business because it can not compete with Chinese pipe, it does not disappear. The factory is closed down, but it is still there. The equipment and machinery are always available. If China raises the price of its pipe, the closed plant can be reopened fairly easily and quickly. So it is unlikely that China would be stupid enough to raise its prices too much.
So, like most everything in the world, product dumping has its good and bad sides. However, it seems to me that more people benefit from dumping than suffer.