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Over the last two decades, most countries, including the United States, have become more cautions of the excessive supply of cheap products from foreign markets. In particular, the United States has enacted anti-dumping campaigns and measures to control the influx of cheap goods from, among other nations, China. Since China accessed the world trade organization in 2011, its reach for western markets has grown tremendously.
However, America and her western counterparts have been reluctant to engage China in mutual trade, considering the excessiveness of cheap products China has been supplying to foreign nations (Messerlin 109). The US considers this excessiveness of cheap good from China as “dumping”, thus employing various strategies to protect her industries against the overflow of cheap Chinese goods in the local market.
This is also becoming the situation affecting India as it grows to be the second largest producer of cheap products after China. The purpose of this discussion is to analyse the impact of “dumping” in American market by foreign nations, with a special reference to China.
Arguably, despite the accession of China to the WTO and the fact that China hosts a large number of American manufacturer’s, there is need for the United States to continue protecting her market and industries from dumping.
The concept of “dumping”
According to Vandenbussche and Zanardi (93), dumping is defined as an international trade situation where a product’s export price is significantly lower that its market price in the country of origin. However, it is worth noting that the sale of a product based on bargain price is not included in the definition for dumping.
Why is China dumping in the US?
It is no doubt that America is a major market for products from all over the world. In fact, most nations seek to develop trade relationships and agreements with the United States in order to access America’s potential and developed market. However, America is also a major producer and exporter of commodities in the world, and targets foreign markets for its goods.
In the recent past, however, the emergence of large economies like China and India has threatened America’s presence in the world market. China’s accession to the WTO in 2001 improved the trade relationship between China and America, which has seen the Chinese manufactures target America as a chief market for their goods (Blonigen and Bown 43).
On the other hand, American corporations have set up major outlets in China, especially in the manufacturing sector. However, there have been problems in this relationship, which seems to affect America more than they affect China.
First, China has the world’s largest population at more than 1 billion people. The presence of cheap labour is evident in China. Chinese workers are paid a fraction of what most low-paid employees get in the western world. As such, Chinese manufacturers enjoy cheap and readily available labour.
This places them at an advantage over the American firms, which in turn allows them to sell their products at a cheaper price in the US. In fact, American corporations such as Apple have moved to China in search of cheap labour, but their main market remains in the US.
The impact of Dumping in America
The impact of this is that American market is flooded with cheap Chinese goods because they are cheaply produced in China. American firms face stiff competition from these products because they cannot produce cheap products due to high cost of production.
When American firms lose the local market to their Chinese counterparts, their production and growth reduces. As such, their rate of hiring reduces, while layoff rates are likely to increase. As more people purchase cheap Chinese goods, the rate of unemployment is likely to reduce in the US, while that of China increases.
Finally, Chinese goods are not necessarily made to meet American standards. Dumping sub-standard products in American market for the sake of cheap price is likely to affect the American economy because consumers will be spending large amount of resources to replace these products.
Concept of ant-dumping policy
In 1994, members of the world trade organization made an agreement on implementation of its Article VI, which imposes the responsibility of nations to curb dumping in their markets (Van den Bossche 56). The agreement, known as the “Anti-dumping Agreement”, was developed under the General Agreement on Tariffs and Trade in the 1994 convention.
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It allows member nations to impose anti-dumping measures to protect the domestic industries that can result from excessive presence of cheap foreign products in their markets (Van den Bossche 63). However, this must be pursuant to (and through) investigations under the 1994 agreement. In addition, a country’s imposition of a duty to curb dumping in its local market must be determined by the margin of dumping at a given time.
This margin is obtained by finding the difference between the domestic selling price in the exporting country and the export price of a given quantity of commodity. The dumped price can be considered a “fair price” and thus not significant reason to impose a duty when export price is added to dumping margin.
In case it is difficult to determine a comparable price for offering the product in the domestic market due to low or lack of volume sales in the normal process of trade, the country must investigate the possibility of dumping by comparing the import price with the same price in a third nation.
Alternatively, the WTO agreement requires the country to develop a “constructed value”, which should be used in comparison with the export price.
There is a great deal of freedom for countries to impose anti-dumping measures against their trading partners. For instance, a government is not required to provide consent or even offsets to an initiative taken as a countermeasure by its trading partner.
Effect of anti-dumping policy
Anti-dumping policies, such as the one initiated by the US against China, have a wide range of effects on both local and foreign economies. With implementation of such policies, products are likely to become less attractive to an importer, which favours local products. Local firms are likely o enjoy reduced competition.
In addition, local firms enjoy tremendous growth and expansion, which provides a source of employment for the local population (Nelson and Vandenbussche 127).
However, anti-dumping policies have some negative impacts. For instance, local firms need to import some goods and raw materials that are not available in the local market.
When a foreign nation such as China has been targeted with an anti-dumping policy, it is likely to reciprocate by increasing the price of exporting such materials to the trade partner. As such, local firms are likely to face tough terms and conditions as well as high prices when importing products from the targeted country.
Moreover, such a policy is likely to discourage competition in the market, which in turn hinders development. In addition, it is likely to favour local firms such that they increase product prices deliberately since there is no competition.
Blonigen, Bruce and Chad Bown. “Antidumping and Retaliation Threats”. Journal of International Economics 60 (2009): 249–273. Print
Messerlin, Patrick. “China in the World Trade Organization: Antidumping and Safeguards”. World Bank Economic Review 18.2 (2008): 105–130. Print
Nelson, Douglas and Hylke Vandenbussche. The WTO and anti-dumping. New York: Edward Elgar Publishing Limited, 2009. Print
Van den Bossche, Peter. The Law and Policy of the World Trade Organization. Cambridge, UK: Cambridge University Press, 2010. Print.
Vandenbussche, Hylke and Maurizio Zanardi. “What Explains the Proliferation of Antidumping Laws?” Economic Policy 23 (2008): 93–138. Print