Time to Dump "Dumping"?
Dumping, or the practice of a producer in one market selling below cost in another market to drive out competition, has a dubious logical pedigree. But its political history is second to none: a perfect shut-up argument. The idea seems to be that you should always accuse competitors of “dumping.” It does sound so much better than “foreigners are producing a better product at a lower cost and I want men with guns to stop them at the border.”
Take second-hand apparel. Here is a reuse-recycle market that actually works! There is such a huge stock of already-produced, slightly used clothing, that a number of nations in Africa and south Asia have claimed such clothes are being “dumped.” The idea that this is dumping has also popped up in New Guinea.
The argument that (new) textile and apparel manufacturers make is that their jobs must be protected for the good of the nation. But study after study has shown that the cost to consumers is an integer multiple (3 times, 4 times, maybe 10 times) the benefit to the textile worker. Still, there may be some point to this, since the reason that the second hand clothes are so cheap is the “goodwill” of industrialized nations. Huge shipments of second-hand clothing from charitable organizations have swamped the markets of third world nations, driving native clothing makers out of business. (You might want to draw the line at undies, though. Ick.)
Talk about unintended consequences: the guy wearing the “Munger Family Reunion, 1996” t-shirt in Mombassa got the shirt for free, but now he’s lost his job at the small textile company. Without meaning to, industrialized nations are subsidizing exports of second-hand clothing, which is imported into third world nations at prices that are very close to zero.
Of course, you can’t win for losing. When some governments tried to respond by putting a tax on second-hand clothing, they drove still other local businesses bankrupt.
For another example, take steel….please. President Bush imposed tariffs (briefly) on imported steel because of alleged dumping. This is an old argument. The problem is that steel is a very high fixed cost industry, and in a slump, in the short run, it makes perfect sense to sell at low prices, so you can cover your variable costs and part of your fixed costs.
Let me ask you this: What producer is guilty of the most egregious dumping in the U.S. steel market over the past decade? The answer is …. U.S. Steel Corporation! Yes, they have incurred huge losses over several of the past ten years. I’m pretty sure that means that they have been selling steel at prices below “cost,” and that is dumping.
Sure, that’s nonsense, but dumping is a nonsense concept. Dump it.