Does dumping really exist?

 

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Dumping, in economics, means the selling of goods or produce cheaply in another market from the one in which it was produced.  It is a common claim by politicians that another country is dumping goods or materials in the home market. 

Dumping forms the subject of the recent, widely praised book, Trade Wars are Class Wars (Matthew Klein and Michael Pettis, Yale, 2020). It is used to explain much of the malaise of the modern world.

But does dumping actually happen? My feeble attempts to learn economics don’t seem to have said much about dumping – or perhaps I just wasn’t listening for that lesson. Let’s start by seeing what the orthodox theory is and then how it might be applied.

 Here’s what the Economist Dictionary of Economics says by way of definition:

 Selling something for less than the cost of producing it. this may be used by a dominant firm to attack rivals, a strategy known to antitrust authorities as predatory pricing. Participants in international trade are often accused of dumping by domestic firms charging more than rival imports. Countries can slap duties on cheap imports that they judge are being dumped in their markets. Often this amounts to thinly disguised protectionism. In practice, genuine predatory pricing is rare - certainly much rarer than anti-dumping actions - because it relies on the unlikely ability of a single producer to dominate a world market.  

So, according to the economist, you would need to dominate a world market to create predatory pricing.  

Here is the website Economics Classroom definition:

The practice of producers in one nation selling their output at a price lower than their costs of production in another nation. Considered a justification for protectionism by the World Trade Organization.

 I still don’t get it. Which country can afford to sell off its products for less than the cost of production?

 According to the book Trade Wars are Class Wars, dumping dates back to J A Hobson’s book Imperialism (1902). Hobson’s idea was that British mine owners made great efforts to sell manufactured goods in the colonies such as South Africa, while neglecting investment and living standards at home.

Now, I can understand the business practice of would-be monopolists such as Standard Oil (in the early 20th century) and Uber (in the 21st century). Both of them reduced prices in target markets to drive out competition, in the expectation that they could raise prices subsequently. But could any Chinese company (say) afford to flood the European market with such cheap steel that all the European producers went out of business? Or, perhaps more likely, if the European producers are not as cost-effective as Asian companies, it would be economically better for them to cease producing steel, as long as the resulting market left competition available – and steel is produced in Korea, China, Australia, and many other countries.

In short, I am not convinced by the dumping argument as practised by a nation state, although I can believe it if practised by a corporation.