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Why Might Dumping Occur?

Why would foreign firms export a product at less than its cost of production—which presumably means taking a loss? This question has two possible answers, one innocent and one more sinister.

The innocent explanation is that market prices are set by demand and supply, not by the cost of production. Perhaps demand for a product shifts back to the left or supply shifts out to the right, which drives the market price to low levels—even below the cost of production. When a local store has a going-out-of-business sale, for example, it may sell goods at below the cost of production. If international companies find that there is excess supply of steel or computer chips or machine tools that is driving the market price down below their cost of production—this may be the market in action.

The sinister explanation is that dumping is part of a long-term strategy. Foreign firms sell goods at prices below the cost of production for a short period of time, and when they have driven out the domestic U.S. competition, they then raise prices. This scenario is sometimes called predatory pricing, which is discussed in the Monopoly chapter.

Should Anti-Dumping Cases Be Limited?

Anti-dumping cases pose two questions. How much sense do they make in economic theory? How much sense do they make as practical policy?

In terms of economic theory, the case for anti-dumping laws is weak. In a market governed by demand and supply, the government does not guarantee that firms will be able to make a profit. After all, low prices are difficult for producers, but benefit consumers. Moreover, although there are plenty of cases in which foreign producers have driven out domestic firms, there are zero documented cases in which the foreign producers then jacked up prices. Instead, foreign producers typically continue competing hard against each other and providing low prices to consumers. In short, it is difficult to find evidence of predatory pricing by foreign firms exporting to the United States.

Even if one could make a case that the government should sometimes enact anti-dumping rules in the short term, and then allow free trade to resume shortly thereafter, there is a growing concern that anti-dumping investigations often involve more politics than careful analysis. The U.S. Commerce Department is charged with calculating the appropriate “cost of production,” which can be as much an art as a science.

For example, if a company built a new factory two years ago, should part of the factory’s cost be counted in this year’s cost of production? When a company is in a country where prices are controlled by the government, like China for example, how can one measure the true cost of production? When a domestic industry complains loudly enough, government regulators seem very likely to find that unfair dumping has occurred. Indeed, a common pattern has arisen where a domestic industry files an anti-dumping complaint, the governments meet and negotiate a reduction in imports, and then the domestic producers drop the anti-dumping suit. In such cases, anti-dumping cases often appear to be little more than a cover story for imposing tariffs or import quotas.

Questions & Answers

what is economics
deepakraj Reply
economic is a branch of science which deals with the production,consumption and distribution of goods and services in an economy.
The
economics as a social science
Deep Reply
because it uses scientific method to build the theory that can help explain human behaviour
Boadi
what is competitive demand
joe
ok
Samuel
***goo.gl/search/What+is+competitive+demand What is competitive demand? definition and meaning ... A state of affairs observed between the markets for goods that can readily be substituted for one another. For example, in a competitive demand situation faced by a business, a prospective buyer c
Samuel
hello
Zabihullah
what is price line
Zabihullah
Economics as a social science Discuss
Sire Reply
problems fcaed by economist
Fatumah Reply
what is the meaning of Dumping
Stephen Reply
Normally the independent variable is plotted on the x-axis. but in economics price which is an independent variable is plotted on y-axis. why ?
Aimal
what is cost
Deepon Reply
Cost is the amount of capital spent on purchasing an item. Or the amount of expenditure incurred in producing a product or rendering service.
Acid
describe the features of micro economics with suitable example
Purusoth Reply
what is economics
ZELISAH Reply
According to Mankiw it is the management of scarce resources.
Aimal
economics it is a science that study human behaviour as a relationship between end and scarce means which alternative uses
Kpalam
Give more definitions for economics
Stephen
economic is the study of allocation of scarce resources to meet unlimited human wants
Boadi
what is complementary demand
joe
what is the economic implications of recent imposition of charges or taxes on Nigerian depositors by central bank of Nigeria
mohammed
so what should a nation do to minimize scarcity?
Andrew Reply
is there any difference between firm and industry under monopoly
Dipsikha Reply
I think firms come together to form industry
Stephen
There is a well known saying in economics that "there is no such thing as a free lunch". Discuss. Guys any answer
Ernest
Economic,choice,scarcity,opportunity cost
Seyram Reply
hlo
Anil
choice
Seyram
How to we read in hindi
anshu
wt
Abhinav
I think we should explain each
Stephen
marshellian demand curve?
Mohsin Reply
Economics is the study of how societies, government, businesses, household and individuals allocate their scarce resources
WISDOM Reply
True
Arebu
true
Tongai
true
NIcky
true
Stephen
What is economy
mwas Reply
who was the father of micro economics
Rayappa Reply
Adam Smith
Harsimar
adam Smith
SHAHEEN
smith
Arebu
adam smith
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adam smith
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Adam Smith
Bulbul
Adam smith
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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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