Sunday, April 15, 2018

What If China "Dumped" Goods in America for Free?

Robert J. Barro correctly observes:
The Trump theory of international trade seems straightforward: Selling stuff to foreigners is good, and buying stuff from foreigners is bad. It’s a form of mercantilism. Exports are attractive because they represent domestic production and American jobs. Imports are undesirable because that production and employment otherwise could have happened at home.

Simple economic reasoning, however, suggests that this logic is backward. Imports are things we want, whether consumer goods, raw materials or intermediate goods. Exports are the price we have to pay to get the imports. It would be great, in fact, if we could get more imports without having to pay for them through added exports...

For example, if the Chinese want to subsidize particular goods, Americans can benefit by buying them at artificially low prices. In the extreme case of China giving goods away free, it takes a lot of imagination to construct a model in which this “dumping” would be bad for the U.S. overall (though it might harm some American producers).

-Robert Wenzel  -Robert Wenzel  


  1. The goal of dumping is put competitors out of business when the dumpers believe they can last longer at those price points. Once the competitors are out of business much of the capital equipment will be scrapped and the knowledge base scattered to the winds. Or the dumpers can buy up the capital, the bankrupt competition, etc. The start up costs and the possibility of a new round of dumping will discourage new competition from forming.

    As a result the dumpers will raise prices to a profitable level and dominate in market share.

    This what the Saudis try to do with oil and their lower extraction costs, but it also works when taking a loss so long as one can last longer. With government support the ability out last those without it is a near certainty.

    1. Seems like a pretty absurd strategy. If anyone figures what’s going on they can just buy up and stockpile your product at low prices, and mothball their own production for later.

    2. That's similar to what Herbert H Dow (the founder of Dow Chemical) did in order to break a German government-backed cartel.

      Trumpistas making economic assertions without giving consideration to what they're arguing is par for the course. Mnuchin, Ross and Navarro do it, looking like fools, why would JJM be any different?

    3. Torres, why don't you try making an actual argument instead of throwing around "Trumpista" accusations well rather insults? Is it that you simply cannot offer one? That's probably the case. Just because dumping can be used to break a cartel doesn't mean it can't be and hasn't been used exactly as I outlined.

      Evan Smiley, It's not an absurd strategy but one the Chinese government has been using deliberately. They want manufacturing market share and the government subsidizes it to get it. We are told this is good for the american consumer. There have been US companies that ended up owned by Chinese companies as well.

    4. @JJM

      Just because a state happens to be attempting to implement a particular economic plan doesn’t mean that plan isn’t absurd.

      And yes, obviously I would prefer the Chinese state didn’t subsidize export manufacturing, and instead permitted a freer market. But to the extent that it’s leadership remains in the thrall of mercantilist fallacies, it’s not wrong to point out that the American consumer is among the biggest beneficiaries of this particular error.

  2. What if a houseguest bought groceries, cooked dinner, cleaned up and then slept somewhere else?