How To Protect Yourself From "Dumping" and Profit in the Process
Local politicians and protesters are in a huff about foreign producers “dumping” steel on the US market. They’re making the usual noise about protecting communities, foreigners “flooding” American markets, and so on.
If you’re worried about losing your job because foreigners are “dumping” steel on the US market, or if you’re worried that foreigners will jack up prices once they’ve eliminated American producers, here’s how to profit from their nefarious strategy:
1. Take your savings and start stockpiling the steel that foreigners are producing below cost. Get a home equity line of credit or something and borrow money if you have to.
2. Once the foreigners decide to jack up the price, undercut them by selling your steel stockpiles. Pocket a handsome profit from the difference between the below-cost price you paid and the just-below-what-the-evil-foreigners-are-charging price at which you sell the steel.
3. If you have enough money to do it, keep buying steel until you drive the evil foreigners out of business. After all, they won’t be able to sell steel at a loss forever. If they have to start raising prices, then you can match them or undercut them and make a pile of money. You might not be able to do it individually, but I’m sure US Steel or the steelworkers’ union can mobilize the resources to make an impact.
4. If foreigners are systematically selling steel in the US below their domestic market price, buy as much steel as you can at the artificially-low price and then use the foreigners’ own steel to undercut them in their domestic market.
5. A lot of people are worried that state and municipal governments won’t be able to meet their pension obligations. If foreigners are dumping with an eye toward juicy future profits, the strategy outlined above could provide a windfall that would ensure solvency for states and municipalities for decades to come.
The fact that no one appears to be doing this combined with the fact that the proposals are cloaked in the language of fairness suggests to me that there’s something fishy going on here. Here’s Jagdish Bhagwati’s article on “Protectionism” from The Concise Encyclopedia of Economics. It contains this choice quote from one analyst: “If the same anti-dumping laws applied to U.S. companies, every after-Christmas sale in the country would be banned.”
Jun 23 2014 at 6:24am
Sounds kinda like the Herbert Dow story:
Jun 23 2014 at 8:43am
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Jun 23 2014 at 10:16am
Interesting idea, however, I can see some potential problems.
Of course the first would be that, in the case of foreign industries subsidized by their own governments, they may be able to sell at a loss indefinitely, if the policy of their governments remains in their favor.
Secondly, a business that tried this strategy might find itself paying taxes on inventory that reduce the margin on the investment to unsustainable levels.
Thirdly, tying capital up in inventory is probably not the most efficient use of it. Of course, if a business has nothing better to do with its capital than buy a competitor’s product and sit on it, it’s investors may wonder what they’re paying for.
In the case of municipal entities shoring up pension funds by profiting on commodities trading, one can’t imagine it would go any worse than the same funds investing in the stock market…
Jun 23 2014 at 11:17am
Ah but now you’re an evil speculator, hurting Americans by driving up prices.
Jun 23 2014 at 1:29pm
“The markets can remain irrational longer than you can remain solvent.”
Jun 23 2014 at 2:34pm
The problem is that the foreigners’ country has laws that preven you doing that.
Jun 30 2014 at 9:34pm
Perhaps you should also speculate in stock in companies that use steel.
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