Oct 21 2008
Fair trade vs. free trade: the problem with “dumping”
Published by Jason Welker at 10:22 pm under Barriers to trade,Dumping,Fair trade,Free Trade,IB Economics,Protection,Trade
FT.com / World – Anti-dumping investigations soar
Free trade is good, right? This sentiment is one that economists typically agree with wholeheartedly. The mutual gains from free trade among nations that specialize in the goods for which they have the comparative advantage results in increased global output and consumption among trading nations. That, at least, is the basic premise of free trade.
But is there such a thing as unfair free trade? The World Trade Organization, whose mission is the removal of barriers to trade among all the world’s nations, thinks there is such a thing as unfair trade. Under certain circumstances, the WTO allows member nations to place protective tariffs on particular imports, and recently, more and more nations have taken action to protect their domestic markets from unfair trade practices of their trading partners:
The number of new anti-dumping investigations soared by nearly 40 per cent in the first six months of this year, the World Trade Organisation said on Monday, reflecting increased trade tensions as the credit crunch began to take its toll on the global economy.Between January and June 16 WTO members started 85 new investigations compared with 61 in the first six months of 2007. China was the target of nearly half the probes, a jump of 75 per cent over the same period last year.
Under WTO rules, countries can put duties on unfairly priced imports that are sold in export markets more cheaply than at home. But until this year dumping actions had seemed to be on a downward trend, with 164 investigations in the whole of last year compared with over 200 in 2006.
Anti-dumping actions, once mainly taken by rich countries against poor ones, have become a tool increasingly used by developing nations while industrialised countries have increasingly become targets…
The EU was the third-ranking target in the first half of the year, after China and Thailand. Canada, the US, New Zealand and Norway also had investigations opened against their exports.
The WTO said the main products affected were base metals (21 investigations), textiles (20) and chemicals (10).
The number of new measures taken as a result of anti-dumping probes also rose in the first six months of 2008, with 54 measures against 51 measures in the same period in 2007. India applied duties in 16 cases, with the EU some way behind in second place.
China was again the main target followed by Taiwan, the EU, South Korea, Russia and the US.
Discussion Questions:
- Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
- Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
- When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
- Fair versus Free Trade as means to promote Economic Development
- Free Trade Debate: to what extent has globalization based on free trade contributed to global economic growth and development?
- Mankiw on free trade in politics
- McCain vs. Obama on the costs and benefits of free trade
- The Lord of the Ring of Free Trade: Is globalization really a force of evil in the world?
"Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy? "
As we discussed in class today, imports that are too cheap, or even food aid, are certainly desirable for consumers in the short run. Dumping usually happens when a country produces a surplus of a good one year, and literally "dumps" it on another nation to get rid of the excess. Consumers in the receiving nation benefit, and welfare in that society might even go up temporarily. That is, until the dump runs out.
As dumping is over-competitive in a way, because it sells under the price of production in the producing country, such goods are usually much below the domestic market price of the nations they are given to. Thus, domestic production of the goods in the receiving nations can be run out of business, as it cannot compete for the time period until the dumped good runs out.
So far so good, but because dumping is not a consisten thing, its long-run effects are to basically run some producers out of business, and then one year, when no surplus of the good is produced, and no dumping occurs, the country which previously received the aid is left with a) no aid and b) no possibilty for domestic production, as most of the businesses could not compete under the unfair conditions.
However, protectionism against dumping is not always justified, and I think it is highly probable that as globalization continues, more and more countries will try to pass of protectionist policies in this form infront of the WTO, where they are not applicable. I believe the recent increase in the amount of anti-dumping investigations that have occured in recent years suppors this.
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Palmi,
That was an A+ repsonse! Great summary, answers, and articulation.
I particularly like your last paragraph where you point out that there could be a tendency for protectionist governments to proclaim a more WTO-acceptable "dumping" charge to restrict imports, when, it could be in fact, that the imports are produced at an actual very low cost. It's a tough issue that is hard to prove. GM and Ford both "dump" their cars abroad as the cost to produce a Ford or Chevy is higher than the price they sell it for, evidenced by both firms losing billions of dollars!
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Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping, as defined by Palmi, is the sale of a country's goods below the cost of production in the COUNTRY OF PRODUCTION. This distinction is very important when a countries argues a case for dumping.
For example, recently in the news Russia have placed a quota on US poultry imports.
If America produces poultry below production costs in Russia, and Russia are the importing nation, then we can consider this not to be dumping. It is simply the principle of comparative advantage.
If however, they produce below their own production costs, then Russia have a case for dumping. There are two reasons that the US might be dumping on Russia. Either, they have a surplus of poultry and must find a way to get rid of it, or US producers are being subsidised. A subsidy, as a payment per unit of production by the government, does not represent the true production cost of a good.
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Hi Nic,
Dumping occurs if the exporting country sells the product below its cost of production.
The idea is that any normal country would sell for a profit (price greater than costs) and "dumping" is inappropriate as it implies that the exporting country is getting rid of temporary surpluses.
Dumping is really hard to prove since countries receiving "dumped" products don't have visibility to the cost of production on those imported products. Domestic industries hurt by trade are quick to always claim dumping which may or may not be true.
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When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Nic and Palmi have both defined what dumping, though when can a country prove when another country is dumping goods into their country, or is it simply comparative advantage? Having discussed comparative advantage in class, everyone knows that if countries followed this theory, they would be better off. Dumping on the other hand is highly destructive for the country in which goods are being dumped in. For my commentary i actually had an article on anti-dumping duties placed on Asian footwear from China and Veitnam and how the EU members now want to remove this duty because they have realized that it only worsened their economic situation. As i said in the evaluation of my commentary, if the dumping of shoes were really occuring, then the EU took a beneficial action for the short and long run. However, in this case, it is much more likely that Asian shoe manufacteurs simply have comparative advantage over the European shoe manufacteur. For this reason, when a nation protects its domestic market from dumping the principle of comparative advantage if not being undermined, though if the country that put the protection against what they thought was "dumping" then yes, the principle is being undermined.
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Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is a good example in order to understand the importance of the clarity of the terms of trade. The distinction posed in the question matters. As Nic said, dumping refers to the sale of a country’s goods below the cost of production of the producing country. The selling of a country’s goods below the importing country’s costs of production is not dumping but free trade, by which countries should use their comparative advantage in the production of a certain goods, and sell those to other countries which have a higher opportunity cost in the production of the same good and vice versa. Low priced shoes imported from China or other developing countries where low cost of labour is a comparative advantage does hurt the national shoes industries and increases trade deficit, but is not dumping. Italy can retain his competitive advantage in the shoe industry because of his its high product positioning and quality standards: the strategy is not focused on cheap products, but leverages on design and quality. Customers are willing to pay higher prices because they know shoes are better.
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Livia, you state that: "As i said in the evaluation of my commentary, if the dumping of shoes were really occuring, then the EU took a beneficial action for the short and long run." I'll agree with you that it is beneficial for the EU to place anti-dumping duties on Asian footwear from China and Vietnam in the long-run. However, I don't see why it hurt the EU in the short-run. After all, in the short-run, consumers in Europe will be happy to purchase extremely cheap shoes. It is only in the long-run, once Chinese or Vietnamese producers do not have a surplus to dump in Europe, or European shoemakers have closed due to unfair competition, that the EU will be harmed by dumping. Also, what is the diffence between food aid and dumping? Will food aid not lead to greater famine in the future if it is not accompanied by a long-term development plan?
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Eithan, as you answerd on Livias resonce i would like to add to your statement:"However, I don’t see why it hurt the EU in the short-run. After all, in the short-run, consumers in Europe will be happy to purchase extremely cheap shoes."
Yes it is true that we the european consumers like cheap shoes, and evidently the shoes in aisa are extremly cheap. BUT europeans also like quality and would not just buy shoes because they are cheaper. Europe produces great shoes (Italy) that outrun the standards of the ones made in china. Protectionism as i understand is not only used to protect the domestic marked, but also the quality of the goods imported. To protect product standards, a country might decide to introduce safety, health or environmental standorads on good imported.
It hurt the EU in the short.run, because the quality of the good goes down, and europe wishes to protect that from happening.
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Thanks Eithan, for starting another discussion, what is the difference between food aid and dumping? Will food aid not lead to greater famine in the future if it is not accompanied by a long-term development plan?
Some rich countries are able to dumb their surplus and call it "food aid". The food aid will have a temporary relief on the nation receiving it, but in the long run it will destroy its market for food. Dumping food on to poor nations will hurt the local farmers, who cannot compete. Therefore they are driven out of their jobs and into poverty. Food will lead to greater famine in the future if it is not accompanied by a long-term development plan. Most less developed countries prefer trade over food aid. One particular example that was looked at in class was Kenya. Kenyans want more trade and less food aid. One hotel owner said, “It is better to teach a man how to fish, rather than catching one for him”. I think his point is valid, because it will benefit the Kenyan economy. When I mentioned trade over food aid, I am also aware of the fact that some less developed countries may not have anything to trade for food. So it might not work in all the cases.
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I just realized I made a typo in the 3rd line. It should be dump instead of dumb.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country would soley want to keep cheap goods out of its domestic economy to protect its own domestic firms from this direct competition. Sure the consumer welfare increases with cheap goods as more people are willing to pay the price for the given product. However these cheap imports may harm any domestic firm who might be producing goods in the same category.
With the domestic firms there may lie thousands and thousands of jobs that any gorvenrment would want to protect, as they keep people employed.
This is why for example the auto industry in the USA have been under the protectionist Umbrella for so long. The automakers faced great global competition from other car manufacturers. In order to preserve domestic jobs the government placed tarifs on imported vehicles so GM, Chrysler, and Ford would not have the incentive to outsource these jobs to countries where it would be cheaper in order to retain their competativeness on the global market.
However as we have seen this protectionist idea has not payed itself off, and now the US government face the same problem which they tried avoiding by protecting the domestic automakers in the first place (loss of domestic jobs). The tariffs on imported cars deminished the incentive for the US auto-industry to remain competative, and while all other global car industries have advanced, the american car industry chose to remain on hold in car technology advancements.
This is all due to this idea of governments not wanting any cheap imports on their domestic markets.
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I don't think that giving food aid is the same as dumping. It can be closely related to, but if the more developed country looks into the needs of the less developed country food aid should not cause any problems…
As we have seen in class there was an example of America dumping its excessive corn (for which it had gotten huge amount of subsidizes) into a poor country (I cant exactly remember which country…) it was dumping its corn because the less developed country had a domestic industry in corn. This meant that the domestic corn farmers were driven out of business. The consumer would buy the dumped corn from America rather than enjoy the domestically grown corn. This meant for the domestic farmer that he couldnt buy his corn seeds for the following year. This wouldn't matter if America were to dump its corn again, however the following year America produced less corn and did dump any of its corn into another country. The less developed country now has no corn, and an industry that has been destroyed. This is were dumping measurements need to be taken place.
However, if America would have dumped its corn into a country with no corn producers, or very very little (not near enough to provide the whole country with corn) then wouldn't this benefit the less developed country?
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Hello!
Very Interesting post! Thank you for such interesting resource!
PS: Sorry for my bad english, I'v just started to learn this language
See you!
Your, Raiul Baztepo
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dumping is not bad even the price of a certain product is lower than the other identical product. it has capital so there nothing wrong with it.
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1. A country wouldn't want lost of cheap imports flooding the economy because this surplus of cheap imports would mean less business for the domestic manufacturers of similar goods, and the workers in those firms would lose their jobs. If those workers are out of a job, they can't spend money and help the economy.
2. Dumping refers to selling a product below the price it was made in the country of origin. It is important to make this distinction because selling a good below the importing country’s costs of production is jsut free trade.
3. The principle of comparative advantage is technically being undermined, but it is for a good cause. Everyone wants to buy a good product for a low price, but the long term effects of this habit lead to unemployment in the domestic economy. A country has to pick its poison when dealing with dumping.
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Robin,
Everything you said about food aid and dumping was very interesting. I think there can be some sort of middle ground between food aid and dumping in a third world economy that could get a country the food it needs, while not pushing local farmers out of business. This food aid could be coupled with trading of better technology for farming, for instance. The local farmers could find an importer for the crops while learning how to better manufacture food for future markets.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Firstly, cheap imports are usually of inferior quality, and the cheapest goods that a country sends to another might not only be of bad quality, but might be the ‘dumping’ that a country does not want or does not need anymore. Therefore, cheap imports might benefit and at the same time affect a country’s economy.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of a country’s goods below the importing country’s costs of production. Because when dumping we are not studying the costs relating to were the good is made, but the average costs required to export a certain product out of that country.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
It is being sort of undermined, because the population will not get the chance to buy cheap products. But it is good to take these measures because on the other hand, the population would buy cheap products and the economy would decrease greatly as the taxes will decrease.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country would want to keep cheap imports out of its domestic markets because with an excess of foreign goods being sold for less than the production costs in domestic production there would be negative repercussions in the domestic market. Cheaper goods would please consumers, but they could also result in increased unemployment levels and inflation.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of a country’s goods below the importing country’s cost of production in the producing country. The distinction outlined in the question is important because it relates to the comparative advantages of individual countries.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
In protecting its domestic market from dumping, a nation is can be seen to be undermining the principle of comparative advantage. Because dumping is very hard (if not impossible) to prove, many countries may be seen to be utilizing their comparative advantage rather than simply dumping their excess goods in another country at a very inexpensive level.
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To Myrthe,
I enjoyed your example; it made sense and illustrated the dangers of dumping well. In response to your question (However, if America would have dumped its corn into a country with no corn producers, or very very little (not near enough to provide the whole country with corn) then wouldn’t this benefit the less developed country?), I understand that this would not necessarily be the case. If, in your example, the US had dumped its excess corn in a country with very little corn to begin with, due to the American production of corn in the subsequent year being significantly less, it could hurt the domestic market there. Also, in a country with no/very few corn producers to begin with, it would seem that the dumping of American corn there would result in problems in the market for the substitute good in that country.
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1.Even though cheap imports make consumers happy, they don’t make the domestic producers very happy. If a country is importing goods that are sold for much cheaper than the prices the domestic firms are selling their goods for, than it will cause problems with unemployment. The local businesses, with the increased prices, will suffer because eventually they will go out of business since the demand for their goods are decreasing.
2.Dumping refers to the sale of a country’s goods with a price that is lower than the price that the exporting country sells the goods in their own country. The distinction is important because otherwise, if it was the sale of a country’s goods below the importing country’s cost of production it would mean that its simply free trade and not “dumping”.
3.Basically, yes. When a nation protects its domestic market form dumping, they are not allowing all the potential choice for their citizens to have the comparative advantage of buying goods at the lowest price possible. However, even though the principle of comparative advantage is being undermined, there is also a positive aspect to this protection. The nation is protecting their economy from other problems such as unemployment.
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(1)As studied, countries would want cheap imports out of their domestic markets to protect the domestic producers. If domestic producers cannot produce at the same price as the world price, then their demand decreases, due to the theory of opportunity cost: People have to spend smaller portions of their income on the product, so they can spend more on other products for example. Some countries, especially developing ones also use protectionism as a raise in their governmental revenue, because it is difficult to raise actual taxes. This gives them the opportunity to spend more in the development of their nation. Cheap products make the consumers happy, but not the domestic suppliers, and since consumers are also suppliers they are interlinked. If domestic production would decrease, so would consumption, because people can spend less on other products.
(2)Dumping is the sale of a country’s good below the costs of production in the country where the good is made. This distinction is of high significance. If the price is below domestic production costs, then that means that in the short run the company will be making profit, because their product is cheaper than how much it cost to produce it. Example: Country A sells produces butter at 1.5$ but sells it at 1$ in country B. If the price would be under the (potential) costs of production of the export country, then that would not necessarily mean that the company would make a loss. This is, when the export country’s costs of production for the same product are higher. Example. Country A produces butter at price 1.5$, Country B produces butter at 2$, country A exports butter to the price of 1.7$ to country B.
(3) I think that the principle of comparative advantage is definitely undermined, because it does not have any significance anymore, once protectionism is applied. Then, the price of the imported products is the same or even higher than of the domestic products, therefore the comparative advantage is of no use any longer. The country only looses in this situation, because they can sell less products, which are at cheaper prices than the domestic products. So, in comparison to the domestic producers, they may even make less profit, although they originally had the comparative advantage.
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To Celine:
Very good answers I thought. You also mentioned the consequences on (un)employment in the nations, which I didn't really focus on in my answer, but I think you're right that it's important to be considered, because if
a) there is no protectionism, then the importing country's firms will potentially not be able to compete on the market and so they have to close down, leaving many people unemployed; thus unemployment rises.
b)there is protectionism, then the exporting country's firms will potentially not be able to compete against the domestic firms and so they possibly have to close down parts of their firm because there isn't enough demand. Therefore their unemployment will rise.
Thanks for that!
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1. A country would want to keep cheap imports out of the country to protect their domestic firms that are more expensive. This would be good for the companies but not for the consumers. The country will see a greater benefit by protecting the domestic companies than the consumers.
2. Dumping refers to the sale of a countrys goods where the price is below the price of the imported goods. the destinctions matters because the meaning would be different.
3.I think that in that case there is not the principle of comparative advantages anymore because only the domestic firms get an advantage as the other ones will only sell less and probably make no profit.
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to kerstin,
I liked what you said in response to celine because in any case you show that there willl be a looser by protectionism. As most countries want the best for their own industries they will introduce protectionism measures, if everybody does that trade will die out because nobody will want something from other countries.
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Response to Calvin:
Your example of the American car industry and what happened to it after America imposed tariffs on importing cars is a good example of why people are opposed to protectionist actions. The American car industry is actually suffering in its potential to grow because they feel secure that their industries wont go out of business. This is what makes this such a debatable subject because in some ways now I agree that in industries that are giving up efforts and advancements, the tariffs should end, and in the case of America, it should end so that they are forced to join into the competitive market.
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1. If a product is produced domestically then the cheaper product will reduce the demand on the domestically made product. This will result in less business for the domestic organisation which snowballs into lower wages, fewer jobs, and a downturn in the domestic economy. Therefore initially lower prices may make the consumer happy, but if that consumer looses their job due to the increased competition with an unmatchable price, then lower prices do not matter.
2. Dumping refers to the sale of goods at a lower cost than they were made, where they were made. This distinction is important as if it were valid to compare it to the production cost of where they were being sold; there could be a variety of reasons as to why the sale price was lower. For instance, increased efficiency could result in one countries industry producing the same product for drastically cheaper. Furthermore, a lower wages and resource price also has the same effect. This distinction is important also as it draws the line between one country intentionally sabotaging local business by using their surplus, and one countries industry just being able to export at a lower price.
3. Yes the principle of comparative advantage is being undermined by the protection against dumping, due to the fact that dumping is so hard to prove. Although the principle of comparative advantage is being undermined it is protecting against the threat of the negative results of dumping.
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To kerstin:
Well thought out answers, in particular number 1. I did not make the connection with the decrease in the demand for other products in the long term in the domestic market due to the decrease in production of the 'dumped' product.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Any countries want to keep cheap imports out of its domestic markets because it usually brings disadvantages to different people and the companies. For instance, markets can cause a central bank to lose control of domestic monetary policy when it is also managing the exchange rate.
There are the non-consumers who would have entered the market if the lower price had been in effect. Also injured are domestic firms that now sell fewer goods because Americans have to spend more to purchase the tariffed products. A tariff levied against “cheap labor” products would economically hold back foreign workers and keep domestic consumers from purchasing less expensive products.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Some products may just no longer be in great demand in one’s home market. In addition, a producer may want to continue a certain production level during an economic downturn at home. In such a case, it may be better to sell products abroad at a lower price than to shut down production for the duration of the economic downswing. Also, foreign monopolists, unable to attain more domestic sales, may be able to increase their profits by expanding sales in foreign markets. As long as production costs are met by foreign sales, the decrease in per unit production costs will increase earnings in the domestic market. This can occur when a company is experiencing increasing returns to scale in production. The foreign market enhances the home market giving rise to economics of scale.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
When a nation protects its domestic market from dumping, the principle of comparative advantage is being sometimes under-minded, though it depends, because sometimes protectionism not always is under-minded. I am saying the protectionism against dumping is not always not under-minded because due to a very likely of globalization that will continue, more and more countries will try to pass of protectionist policies in this form in front of the WTO(world trade organization), where they are not valid. This however, on the other hand, I think the dumping is under-minded because any kind of market manufactures have comparative benefit over the other country manufactures. Due to this reason, when there is a protectionism in a nation, it’s domestic market from dumping the principle of comparative benefit if not being under-minded, though if the country that put the protection against what they thought was dumping, well, I think it is under-minded.
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Jack.ecslb.f09,
Jack, I read through your answers, I liked the fact that you even defined the meaning of some terms you might need to use. Now, I have some doubts about your 3rd answer. I clearly understood where you said that the principle of comparative advantage is being under-minded by the protection against dumping. I did not understand why you think it is being under-minded because you did not state it clearly, according to what I see… Maybe you could have write it in more detail. You said that “due to the fact that dumping is so hard to prove”, can you at least state one reason why? For my answer, I proved both ways that either they are under-minded or not. So, maybe it is good to consider both things.
JiYoon
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1. Of course in the short-run cheap products make the consumers happy but the problem is that if this cheap imports continue to a lot of time they will start to destroy the producers of the nation that receive that cheap exports, so in the long run this cheap products could create unemployment (and the unemployment always produces unhappiness in the people)
2. Dumping refers to act of selling your products in other places anther your price of production (the case of selling anther the price of production of the people of the other place is only free trade)
3. No because if you let the dumping enter in our country it will destroy your industry without reporting real benefit to any one (the companies that create that dumping would not cover the price of produce that)
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raphael.echl.f09
The thing you say is true when the cheaper product came from the free trade but when it comes from dumping it only benefit to the consumers at the beginning but them it destroy the national industry and the next year when there is not dumping the consumers couldn't obtain that product (or obtain it very expensive) because it countries don’t produce it
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Why would a country want to keep cheap imports out of its domestic markets?
Don’t cheap goods make consumers happy?
Cheap imports are good on a short period of time, however it could end up in
unemployment because it would make no good to national producers.
Does dumping refer to the sale of a country’s goods below the importing
country’s costs of production or the costs of production in the country where
the good is made? Why does this distinction matter?
It refers to the sale of products at a lower cost than for which they were made where they were made. This is because some product could have a smaller demand in the one´s home market.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
No, if the nation does not prevent the domestic market from dumping it will affect the internal industry of the country without obtaining any revenue.
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To raphael.echl.f09
I think that cheapp import would just help the companies for a short period after that, it is most likely to provoke unemployment.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
The country does not want cheap imports in its markets, because then that country’s products will not sell and the domestic industry will suffer. Cheap goods may make the consumers happy for a little while, but that happiness will not last long because the effects of the importing will last a lot longer then the low prices. Such effects could be a loss of jobs, for example.
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is the sale of a country’s goods below the cost of production in the producing country. This matters because if it were that a country was selling products to a country where that product was more expensive to make it would simply be free trade, which is nothing like dumping.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
To some extent, yes, protectionism does undermine the principle of comparative advantage. Although the country is looking out for its own economy by stopping dumping, it is at the same time hurting the comparative advantage market. If a country’s domestic market is protected, it is protected from everything, even things that might not be harmful to it.
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Pedro,
You said that protecting a nation's domestic market was not undermining the principle of comparative advantage because,"if you let the dumping enter in our country it will destroy your industry without reporting real benefit to anyone." But what about when it does benefit the country? Not all importing is harmful to the industry.
~Madison
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
It is because as rational consumers, they will buy the cheaper goods. This means that the quantity demanded for domestic goods will decrease. This will lead to a decrease in local labour employed and creates unemployment.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Yes, this is very unfair as the government subsidises and protects their exporting goods. This will create an unfair trade with the country.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
I think to country does not really have a comparative advantage when its goods are subsidised. Their goods are competitive, only because they have a rich government. This disobeys the concept of a self-dependant economy and therefore it does not have a comparative advantage over the other countries.
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To Victor,
Yes, I also agree that the country should set barriers to trade with subsidised goods!
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A country wants to keep cheap imports out of its domestic markets. While consumers are happy that there are cheap prices, the domestic economy is suffering on a whole because the consumers are only happy with the imported goods and are not supporting the domestic market. For this reason, governments put in place reactionary protectionist measures to exclude cheap imports so as to keep out the competition.
Dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is below the price it domestically charges and therefore below the cost of production. The distinction concerning whether or not the price is below the domestic or the importing country is important because domestically, prices of products are unique to the market specific to every country in the world. There are anti-dumping measures taken because when firms contribute to dumping, they are hurting their own domestic economy by offering prices lower than costs of production and they are contributing to comparative advantage in foreign countries.
The law of comparative advantage refers to the ability of a firm to produce a particular good at a lower opportunity cost than another firm. It is the ability to produce a product most efficiently given all the other products that could be produced. Comparative advantage explains how trade can create value for both parties and is the main concept of the pure theory of international trade. The practice of dumping definitely undermines comparative advantage because with dumping in place, both parties are not advantageous.
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Pedro,
If the domestic industry and economy is destroyed due to dumping, isn't that exactly undermining comparative advantage? In comparative advantage, both parties are supposed to gain.. but in the situation you proposed, there is not any advantage in the destroyed economy
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1) Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Dumping in the form of cheap imports can work for a short period of time, although there are some costs as workers in the relevant industries are deemed unnecessary and laid off. However, once the dumping ends, the affected country will be left without a means of producing or easily gaining that good, ruining their economy and forcing them into trade deficits.
2) Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of the country’s goods below their own costs of production. This matters because the country would not be selling goods for less than the production costs unless they are desperate to unload those goods or have a hidden motive.
3) When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
No, because dumping only takes place when the exporter is selling below-cost in their own country; if it was below the costs of the importing country, then the principle of comparative advantage applies. However, under those circumstances, the exporting would also not be considered to be dumping.
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Derek.ecslb.f09,
That's a good point. People will demand fewer domestic goods, which will put domestic companies out of business and lead to the losses of lots of jobs.
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1) Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country would want to keep cheap imports out of its domestic markets so that it would not need to contend with foreign competitors. Cheap imports may make consumers happy but domestic suppliers lose large profits. Thus the economy could suffer due to trade imbalance. Sometimes what the public wants isn’t always in the sellers’ best interests. The government does not want anything hurting the gross revenue of domestic markets.
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2) Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
“Dumping” refers to the sale of a country’s goods below the costs of production in the country where the good is made. This distinction is significant because this determines which country is more negatively affected. Because the cost of production is less, the exporting country is making a profit while the importing country is losing revenue. Dumping is condemned if it causes or threatens to cause material injury to a domestic industry in the importing country. It has the potential to severely damage a country as its domestic markets won’t be able to compete causing internal economic issues.
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3) When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
There is a fine line between comparative advantage and dumping. Dumping is a predatory practice as it seeks to cause domestic markets of importing countries to suffer. On the other hand, comparative advantage is just a matter of strength; some economies are just stronger than others. Some just happen to have the upper hand in the trade balance. These are just the economic facts of life. Dumpling has the power to cripple the domestic markets of a nation; this is simply taking advantage of the situation. In economics, the law of comparative advantage refers to the ability of a party (an individual, a firm, or a country) to produce a particular good or service at a lower opportunity cost than another party. In a nutshell, dumping is unfair trade and comparative advantage isn’t.
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Michael that's a great and brief explanation for why countries would not desire cheap imports. I like how you listed the effects during and after dumping. As you stated, they can be very detrimental.
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Theresa you are correct. Dumping hurts the weaker party. Comparative advantage is most certainly undermined by dumping because as you said, with the principle of comparative dumping no one loses. It's a win-win situation and even though one party may gain more than the other, its completely fair game.
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1. The main reason a country wants to protect against dumping is that it means that their domestic businesses will either lose the consumers or have to drop their prices to a point where they are no longer gaining a profit. This means that the country would then become dependent on imports which would allow the countries providing the exports to raise prices dramatically as there would be no more competition for their goods.
2. I believe that dumping refers to the sale of a country's goods below the importing country's cost of production. The distinction does matter because different countries could have different costs of production. For example, the costs of production in Mexico are much higher than the costs of production in China. If a country operates below their own costs of production, they will face a deficit while the other country's economy may only suffer marginally depending on the strength of their businesses. If they operate below the importing country's costs of production, they will be able to quickly eliminate the country's domestic producers and once they are gone, they will be able to raise the prices dramatically.
3.When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Yes, the principle of comparative advantage is being undermined, but in some cases, comparative advantage is immoral and undermines the entire purpose of free trade as it really creates great disparity between the rich and the poor nations. It could either lead to a world where every nation depends on another nation entirely for a good or to many wars based on resources and such. This could lead to a return to the imperial era which also goes against the concept of economic growth and development.
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1. A country would want to keep cheap imports out of its domestic markets to preserve domestic jobs and firms. If a country has too many cheap imports, the firms and workers in those industries cannot compete with the low priced imports, and therefore those firms shut down and the workers lose their jobs. An industry can disappear in a country if it is filled with cheap imports. They may keep consumers happy for a while, but when other consumers/workers in the country lose their jobs, they won't be so happy anymore.
2. Dumping refers to the sale of a country's goods below the costs of production. This distinction matters because a country would not want to "dump" a good at prices that are less than the production costs, however it occurs when a country is desperate to get rid of those goods, or they could possibly have a hidden agenda regarding the selling of such goods.
3. When a nation protects its domestic market from dumping, the principle of comparative advantage is being undermined in most cases. This means that a firm is producing a good at a lower cost than another firm, and because it does so, one of the firms loses out on this particular good.
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Response to john.ecsla.f09,
I agree that a country would not want to have a lot of cheap imports flooding into the economy, as it is bad for domestic firms and workers. Cheap imports are dangerous, as they can cause the downfall of an industry. I agree that the principle of comparative advantage technically is being undermined, however leaving a nation to pick its own poison is dangerous. The country must truly consider all possible implications of such practices, which doesn't always seem to be the case.
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reply to Theresa.ecslb.f09
Theresa, wouldn't countries only participate in dumping if it could be to their advantage? This would then mean that they would sell their products at a point which would give them a comparative advantage over the domestic markets. This advantage would allow them to eliminate competition and increase their profit over the mid to long-term.
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1. A country would want to keep cheap imports out of its domestic markets because even though it does make consumers happy, it takes business away from local businesses. Local businesses who can't afford to make their goods as cheap as the foreign ones would suffer, leading to a loss of jobs as well.
2. Dumping refers to the sale of a country's goods below the importing country's costs of production. The distinction is important because this can fluctuate due to each country's different economies and policies.
3. Yes by protecting its domestic market from dumping, the principle of comparative advantage is being undermined. However, sometimes this has to be done in order to protect a country's domestic businesses from economic trouble.
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@Diana
That's a great point you made on the first question. It's very often that the consumers want something that isn't necessarily food for the whole country.
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When a country gets cheap imports it makes that item easier for consumers to buy them. This is a positive, but it means that the countries domestic production companies will not make as much money and could eventually put them out of business.
Dumping refers to the sale of a country’s good below the cost of production in the country where the good is made. It’s important to make this distinction so it doesn’t give free trade a bad image. Selling goods under the cost of the country importing cost of production is just a good allocation of resources.
I believe that the principle is not being undermined. The country that is dumping voids the comparative advantage so it is fair game to protect from.
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@alan
i see dumping as the sale of a good below the price of production in the country that made it. it called dumping since the country is just dumping there goods on another country
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1. Cheap goods do make consumers happy. However, they can cause great harm to domestic industries. Dumping occurs when an economy has a surplus of goods, and sells them in another market below the cost of production. Domestic firms are unable to compete.
2.Dumping refers to the sale of a country's goods below the cost of production in the country in which the good was made. This distinction is important because if the price is only below the cost of production in the importing country, it need not necessarily be below the original country's cost. That would simply be an example of a more efficient competitor, not necessarily an unfair trade practice.
3.This does not underming comparitive advantage. The principle of comparitive advantage refers to one country being able to produce a good at a lower cost than another. When a country dumps its goods, it is selling them below its cost of production. This means that comparitive advantage is not a factor in the pricing.
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Alan,
You defined dumping as the sale of a country's goods below the cost of production in the importing country. If this is the true definition, however, then the price may still be above the cost of production in the producing country. This would not be an unfair trade practice, but rather one country producing more efficiently than another.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Yes, the consumers would be happy if they could cheaper goods…..but only if they have a job to afford these expenses. A country would want to keep cheap imports out of its domestic markets because it would potentially put the domestic firms whom cannot compete price-wise, out of job. Because developing nations have an advantage in terms of low labor cost and heavy specialization. Country would want to nurture its infant industry and protect firms from aggression from the outside.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of a country's good below the country where the good is made. If the price is below the cost of production in the importing country, it does not necessarily mean that the price is lower than the cost of production in the original country – it could be well above it. The significance of this distinction is that it determines which country is more negatively affected.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
When a nation protects its domestic market from dumping, the principles of comparative advantage is not being undermined. Comparative advantage refers to the country's capability to produce a goods at a lower cost, whereas dumping only seeks to sell its products below is cost of production. Hence, comparative advantage does not affect the price.
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@Alan
Mattea is right. The distinction is important because in your statement, it could mean that the producer is selling its goods above its cost of production in a foreign country – that unfair free trade. But by selling its product under the cost of production in the original country, the firm can be reducing its losses by selling its product oversea where the price may be slightly higher than the original country's cost of production – the loss is reduced.
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1. They would want to keep these cheap goods out of their markets because otherwise the domestic producers of these goods will not be able to compete at all. Consumers will prefer the foreign goods, driving the local industries out of business. The cheap goods make consumers happy but they only lead to woe and pain for domestic producers.
2. It refers to selling goods below the exporting country’s cost of production. This is what separates dumping from some of the natural effects of free trade. The way that the country can export the good and sell it below their own cost of production is because they already have a surplus of that good. That makes competition with domestic producers nearly impossible and leads to goods that are too cheap to be matched by anyone else. It is an unfair practice that helps consumers but no one else.
3. No, because comparative advantage refers to the normal advantage that a country has in the costs of production and their relative efficiency. Dumping takes advantage of surpluses and is less a factor of the efficiency of the production methods of another country. Comparative advantage is a much fairer trading practice than is dumping.
Trevor Tezel
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Mattea,
I appreciate the connection you draw here – consumers will be happy with cheaper-priced goods but not if they don’t have a job. We definitely need to remember that the costs of dumping or any free trade for that matter can lead to lost jobs and little spending money on which to buy cheaper goods. That’s why I do believe in protectionism to a certain extent. Without it, some countries do indeed suffer. The damage may only be short-term but the question is how long short-term will last.
Trevor Tezel
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1. A country would want to keep cheap imports out of its domestic markets because this would be considered unfair competition against their domestic production. Cheap goods will make consumers happy, but it won't make producers happy. This competition would lead to rises in unemployment and drops in output, which will hurt the economy of the nation. Therefore, nations will want to firmly prevent dumping within their economies.
2. Dumping refers to selling goods below the cost of production of the nation exporting the good. As Trevor stated, this means that the exporting nation has a surplus of the good and therefore is able to sell it at such a price that no other country can possibly make a profit from that good. This effectively shuts down those industries, potentially leaving millions jobless.
3. When a country protects itself from dumping, it is not undermining the principle of comparative advantage. Comparative advantage states that countries which have lower costs of production relative to other countries they have the advantage. When dumping happens, however, the nation is producing below cost, and therefore has little to do with the principle of comparative advantage.
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Hi Trevor (in response to your comment to Mattea's post)–
I really likes what you said about agreeing with protectionism to some extent. I'm with you 100% there. I think that, on paper, free trade is fantastic. In reality, though, the shift as a nation begins specializing in a good means hundreds of thousands unemployed as industries struggle to shift to new production. This of course isn't good in either human or economic terms. It's easy to forget that the sweeping economic statements that we make effect real people who have real needs. So I agree with you–to a certain extent, protectionism is necessary.
Thanks,
Chamonix
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A country would like to keep cheap imports out of its domestic markets as these imports will lower demand and price for the good in question. This will negatively affect the industries producing the goods, causing unemployment and a blockage in the monetary cycle. Additionally it leads to voters being unhappy, which for politicians in democratic countries, is extra incentive to prevent cheap imports. While cheap goods make consumers happy the damage to the monetary flow is so large, and the unemployment even larger that the marginal gains from cheaper goods are not worth it as a whole. For example if a product suddenly was sold for 20 cents cheaper at the same quality you would buy it, but it would not be a noticeable saving effect. However that 20 cent decrease may be enough to get 5 or so workers laid off each of whom might have spent 20,000-30,000 a year on various goods and supplies. The later is far more damaging than the former is beneficial.
Dumping refers to the sale of a country’s goods below the costs of production in the country where the good is made. This distinction does matter because while a country selling a good below the importer’s cost of production is merely a country demonstrating an advantage in production, dumping refers to a government that is specifically subsidizing a good and then exporting it which would be a malicious act designed to disrupt economic activity. This is unfair as the government is absorbing the loss hoping for some other long term effect from their actions. It is not economically efficient for either nation to do this and so there is no economic interest merely political.
When a nation protects its domestic market from dumping the principle of comparative advantage is not being undermined because fundamentally dumping refers to a good being exported below its cost of production in the exporting country. This means that it is not economically efficient for any participant and as such can only occur through subsidies, likely given by the government, and designed for political not economic benefit. In these cases it is truly a justified action, and does not undermine comparative advantage. The exporting country does not have a comparative advantage or they wouldn’t if they were not being provided extra-commercial aid likely via government subsidies. The people in the exporting nation lose as their goods are more expensive, and the people in the importing nation lose as their factories close to literally unbeatable prices.
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@Masaya
I agree with your elaboration on why cheap goods are liked, but while industry is liked better. It's good that you took into account the specifics of the labor markets in developing countries to farther substantiate your arguement. It combines two justifications of protectionism, the first being the infant industry theory, and the second being anti-dumping.
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1. A country would love cheap imports, yet if it affects its own industry then it could cause multiple problems. Unemployment, decrease in GDP, increased government expenditure (short term). Cheap prices make consumers happy, if the consequences are positive or arn't related to the consequences in anyway. However as government you have to make decisions and by brining in cheap imports it will affect your own economy, unless you don't happen to provide that product.
2. Dumping refers to selling goods below the cost of production of the nation exporting the good. This ussually occurs when another country has a surplus of product left and sells it to another country where the cost of production is alot higher. It eliminates that countries own industry of that particular good if dumping continues to occur.
3. When a country implements measures to protect itself from dumping, it is not undermining the principle of comparative advantage. As Chamonix stated, Comparative advantage states that countries which have lower costs of production relative to other countries have the advantage. I don't think that dumping has any relation to compartive advantage only that the cost of production is different.
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@Elijah
For question two you said that you feel that there is no economical interest merely political. Would you say it is of economical interest of the country that is dumping to get rid of the goods?
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1. It would make sense that a country would desire cheap imports to satisfy its consumers with lower prices; however, it happens to be that countries do not run on happiness and domestic economies can be destroyed by this dumping. If the imports are extremely cheap, then there is no way for the domestic firms to maintain such low prices and continue to function.
2. Dumping is the sale of one country’s good to another country at a price lower than the production cost in the first country. The distinction is important because we must realize that the importing country is faced with such low prices because the exporting country is able to sell lower than their production cost with their surplus. Only consumers can reap benefit from this, which makes it an unfair trade practice.
3. Comparative advantage is not undermined by dumping because comparative advantage refers to each country’s relative advantage over the other, which can be used to form a trade partnership for mutual advantage. Dumping is when a country takes advantage of another country by getting rid of its surplus there for a low price, which ensures no competition.
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@Ralph
I like what you have to say, but for the third question you say that the two are unrelated when I think that the two are related in that when a country dumps its products into another it does have the comparative advantage in production of that product, hence it is called dumping. However the principle of comparative advantage is oriented towards the mutual benefit that can be achieved when two countries have comparative advantages in two different sectors which can result in a healthy trade relationship. Thus I don't think that dumping undermines it because it simply does not apply in this context.
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1.
Cheap imports would compel domestic firms to lower their prices to compete with these imports. With lower prices there would be lower supply and more would be obtained from imports. Domestic firms will have to discharge workers and curtail their spending on resources from other industries, and this would bring raised levels of unemployment, which is undesirable in any country. Cheap goods do make consumers happy, yet the risk of unemployment seems to prioritized in many countries.
2.
If a country would sell goods below the importing country's cost of production, then it is merely applying the rule of comparative advantage as it is able to produce a good more efficiently and at a lower price so the importing country can benefit of that. With dumping, the goods are sold below the costs of production in the country were the good is made. This would only be possible through surpluses or subsidies from the government, and would make the prices of the goods virtually impossible to compete with. Dumping is designed to eliminate foreign competition, and though domestic consumers may enjoy lower prices, it could have a disastrous effect on the importing country's industries and employment rate.
3.
The exporting country does not have a comparative advantage as it is not producing at its natural capacity – it is producing below its own costs of production, which could only be achieved through subsidies or temporary surpluses. The principle of comparative advantage allows countries to exchange goods that they are most efficient in producing – thus optimizing the efficient allocation of scarce resources – whereas dumping is meant to deliberately eradicate overseas competition.
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Dennis,
I agree with your response to Ralph, dumping is related to comparative advantage. I like how you said dumping is in fact using the principle of comparative advantage yet not applying it in the context of mutual benefit for the trading countries. I hadn't thought of it in that way, so thanks for pointing that out.
-Eline
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1. Cheap imports would force domestic firms to lower their prices to compete with these imports. With lower prices there would be lower supply and more would be obtained from imports. This will cause unemployment. Cheap goods do make consumers happy, yet the risk of unemployment seems to prioritized in many countries.
2. Dumping refers to selling goods below the cost of production of the nation exporting the good. This ussually occurs when another country has a surplus of product left and sells it to another country where the cost of production is alot higher. It eliminates that countries own industry of that particular good if dumping continues to occur.
3. Comparative advantage is not undermined by dumping because comparative advantage refers to each country’s relative advantage over the other, which can be used to form a trade partnership for mutual advantage. Dumping is when a country takes advantage of another country by getting rid of its surplus there for a low price, which ensures no competition.
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Eline,
Its true what you said about dumping being related to comparative advantage, but not in the context of mutual benefit for the trading countries.
Armando
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1.Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
They would want to keep them out of the market because this would force the local producers to also reduces there prices in order to compete with the goods being imported. With these lower prices profit margins will be drastically reduced and businesses may not receive enough demand to sustain such low prices therefore there is a possibility of unemployment and the breakdown of this market in the domestic market. The lower prices do make consumers happy but countries value employment more.
2.Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is the sale of goods below the costs of production in the country where the good is made. This is because they only way in which this would be possible would be due to surpluses or subsidies by the government. This distinction needs to be clear as on is just one country having a comparative advantage due to economies of scale and thus trade would be beneficial where as the other is more destructive in the domestic economy.
3.When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
No this doesn't undermine the idea of comparative advantage as this is where it becomes mutually beneficial to trade as both have goods with comparative advantages. Thus they both benefit from economies of scale and efficient allocation of resources. Dumping as said before is more destructive where companies will undermine local businesses to gain an advantage in the country and they are able to do this through the subsidies they receive.
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Hey Armando,
Great responses to the questions and i agree with your answers i feel that dumping is clearly differentiated from comparative advantage because of mutual benefit. What i would also say that dumping is very aggressive and destructive. It reminds me of destroyer pricing that is used in the business world but this is illegal and its surprising to see that it is allowed in trade.
Dan
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1. imports that are too cheap, or even food aid, are certainly desirable for consumers in the short run. Dumping usually happens when a country produces a surplus of a good one year, and literally “dumps” it on another nation to get rid of the excess. Consumers in the receiving nation benefit, and welfare in that society might even go up temporarily. That is, until the dump runs out.
2. Dumping is the sale of one country’s good to another country at a price lower than the production cost in the first country. The distinction is important because we must realize that the importing country is faced with such low prices because the exporting country is able to sell lower than their production cost with their surplus. Only consumers can reap benefit from this, which makes it an unfair trade practice.
3. No this doesn’t undermine the idea of comparative advantage as this is where it becomes mutually beneficial to trade as both have goods with comparative advantages. Thus they both benefit from economies of scale and efficient allocation of resources. Dumping as said before is more destructive where companies will undermine local businesses to gain an advantage in the country and they are able to do this through the subsidies they receive.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country may want to keep cheap imports out of its domestic markets because it creates a "dumping" effect. It is good for consumers in the short run, but in the long run an excess of the imports is created and the exporting country is more or less dumping their extra goods on the country that is importing them, and it creates a larger competition in a domestic market for those who locally produce.
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of a country’s goods below the cost of production in that same country, so it is the latter of the potions. This distinction matters because it comes to play when countries have arguments over dumping.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
It is difficult to tell if the principle of comparative advantage is being undermined because it is difficult to tell when it changes from comparative advantage to dumping. When a country is importing cheaper goods, it is beneficial for them to a point, but can turn into dumping as the importing continues to grow and the demand for the good does not.
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@ Livia
I found this extremely helpful in determining the difference between dumping and comparative advantage, and the example makes it that much better. Although people had defined these two before, however, it should be refreshed to define again as it would be helpful to relate throughout your entire answer. Also, it was very helpful to reiterate the conclusion at the end of your response, and providing evidence makes it that much easier to realize.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
At first the Word “cheap” imports sounds good in terms of both consumers and the money for government to pay to get those imports. But if we look at this concept from the domestic firms’ perspective then we see that because of cheap products domestic firms should lower their prices so that they can still “survive” in the industry. Because of this dumping occurs. Dumping is the selling of a good in another country at a price below its unit cost of production. (Approach your exams the IB way). Lowering prices will cause decrease in production, supply. When production decreases there is a decrease in the number of workers. At the end it will cause unemployment which is not something good for the economy. On the other hand yes consumers love cheap products but after sometime because of unemployment the income of people will decrease and again those products won’t be efficient.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is selling the goods of one country to another country with a price which is below the cost of production in the country where the goods is made. The distinction’s importance is that the country has the ability to export its goods with a lower price that lower than the cost of production and the country which import these goods is lucky in terms of consumers’ demand to the cheap goods.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
I think comparative advantage is different. For this concept, countries that doing export are selling things under the cost of production of those goods and this happens by their surplus. On the other hand, comparative advantage exists where a country is able to produce a good at a lower opportunity cost of resources than any other country. Comparative advantage exchanges the best produced goods between countries.
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To Caroline Mooney
The answer of the first question you mentioned about the consumer response to the cheap import goods and I liked it that you have mentioned this in the short run and in the long run.
Thanks..
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1. It would certainly make them happy, but the government wouldn't be at all. Cheap imports force the domestic producers to lower their prices to survive in the competition. The firms lay-off some workers to reduce their costs. Sometimes shutting down the firm might be seen, too.The government would not want to have high rates of unemployment and be dependent on foreign products.
2. Dumping is the selling by a country of large quantities of a commodity, at a price lower than its production cost, in another country. If it were vice versa, it would be free trade. In this situation, the importing country producers has no chance against a rival which doesn't care about its production cost.
3. No. In this case, the exporting country sells the price lower than the production cost, the importing country needs to protect its producers from such an unfair competition. If the exporting country sold the good higher than its production cost and the importing country still used protection, then it would be undermining the principle of comparative advantage.
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@# elijah.echl.f09on 03 Nov 2010 at 11:45 pm
The multiplier effect is a good example to understand how cheap imports affect the economy badly.
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1. Cheap goods do make consumers happy. However, excessive purchase of cheap imports product will affect the unemployment in the domestic market. Because consumers prefer cheap import goods, demand for domestic products decrease and as a result employees will have to be decreased to increase revenue and not much employees are needed for low production with low demand.
2. Dumping means the sale of a country's good below the cost of production in the country where the good is made. Dumping goods are really low prices products and this is to get rid of other competitors so that country which makes the good will benefit from market share.
3. Comparative advantage is when a country's opportunity cost in producing a certain product is lesser than the other country. Which I think is a different concept with the dumping of domestic market.
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# Caroline Mooney
For question 1.
Well, it can be a problem of dumping. however, another reason for keeping out cheap import foods is because of the unemployment problem.
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1.Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
It would make the consumer happy in short run as they will demand with spending less of their income. However, the cheap prices will be causing the firms to lower their price to compete and their production will also decrease. Less workers will be needed due to aim of firms to decrease their costs and the level of unemployment will be higher.
2.Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is the selling a good in a foreign country for less than either the price in the domestic country, or the cost of making the product. It is to impose lower prices and take advantage of market share so it should not be confused with its reverse which is free trade.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Dumping is advantageous for countries as it involves benefit from economies of scale but local firms and markets will be terminated due to decreased competiton with lower prices.
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# Dilan Gunes
I liked the way you linked the theory of unemployment reasons with the first question.
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# Mehmet_Mert_Suma
In your answer to the 3rd question, If the exporting country sold the good higher than its production cost and the importing country still used protection and therefore lead the undermining comparative advantage approach is interesting way to link dumping and comparative advantage in that sense.
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• Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country may want to keep cheap imports out of its domestic market because the country may feel that the good that is being imported is artificially cheap due to dumping. Dumping is when goods are exported at a cheaper price than the average price of the good. This seams like a clear black or white type of deal but things that may seem like dumping might not be. For example if a country just is able to produce a good more efficiently than another country due to their factor endowment or technological success would not be dumping. The exporting country would just have the comparative advantage in the production. Dumping would be, for example, when a country illegally subsidizes the domestic production of a good so much so that it can be exported at a very low price. The reasons for doing this are usually competitive. Another example of dumping is when a government exports goods that it has kept due to a buffer stock scheme.
Countries do not usually like to entertain dumping because it can destroy a market in a country that does have the factor endowment for production of that good, whereas the dumping country may not. In the long run the country that is dumping will not be able to subsidize the domestic production of the good and the price will begin to rise. This rise in price will affect the importing countries and since the domestic markets for the exported good in the importing countries might have become inactive or totally shut down, the prices will continue to rise.
Countries also want to ban dumping because the prices will be so low that domestic businesses will not be able to compete. Let’s say country X is dumping goods into country Y. The people of country Y are going to start buying the dumped goods from country X because they will cost less than the goods produced domestically. This will lead to business in country Y to go out of business even if country Y has the factor endowment for the good being dumped. This will lead to unemployment and the necessity to switch the focus of the market. This will cost the government a lot of money and maybe lead the government to retaliate. Country Y’s government may subsidize the production of the dumped good so much so that country Y’s domestically produced goods cost less than country X’s exported good. The government of country Y may also decide to set up tariffs, quotas, or even ban the importing of the good from country X.
Cheap goods make consumers happy but just to a certain degree. Consumers will not be happy when they are buying dumped goods maybe because of the quality or because of where the money from the dumped goods is going towards (exporting country). These cheap imported goods will eventually decrease the aggregate demand and thus decrease the real GDP. This because people will stop buying goods produced in their country and start producing goods that were producing in another. This could decrease the standard of living in the importing country because unemployment will increase. If the unemployment increases, disinflation will occur. Disinflation is when the inflation rate decreases below it natural rate. This means that 2 dollars is worth more than it was before; so something that cost two dollars will cost more to the consumer than it did before. Business might need to lower their prices or fire employees causing more unemployment. For these reasons, cheap imports are not always seen in the good light for consumers.
• Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping does not refer to the sale of a country’s good below the importing country’s costs of production. The reason that countries import is to be able to sell goods for cheaper. Importing was made so that the consumer of an imported good pays a smaller price than if the good was produced at home. This is because the country that is exporting the good produces the good at a smaller price than is possible for the importing country. For the sake of simplicity, country Y will be the importing country and country X will be the exporting country. The whole reason that country Y is importing goods from country X is because it cost too much to produce goods domestically. Country Y does not have the factor endowment in the production of the traded good. If dumping were to be the sale of country X’s good below the cost of production country Y would endure, all trade would be dumping. What would be the reason for trade other than to obtain lower prices for goods?
Dumping most certainly refers to the sale of country X’s goods to country Y at a lower price than the cost of production in country X. This would mean that the price that country Y is paying for the good is artificially low. This artificially low price can come about from country X illegally subsidizing the production of the good in question thus making the price of the good when exported to country Y artificially cheap. So cheap that domestic markets have no possibility in competing with the imports.
This distinction matters because dumping could unknowingly undermine the concept of the comparative advantage. If a country has a comparative advantage in the production of a good, it will obviously be able to sell the good at a very low price to other countries, and thus this would just be called trade. If a country sells a good below its cost of production, the price of this good would be artificially low when sold on the international market and THIS would be called dumping.
• When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
When a nation protects its domestic market from dumping, the principle of comparative advantage is NOT being undermined. Countries will, of course, produce a good at a lower price if said country has the comparative advantage in the production of this good. When these goods are sold on the international market the prices will be low in comparison but will not be artificially low. When dumping occurs, the prices on the international market for the dumped good would be artificially low. The key word is artificial. A good may be priced artificially low because the government subsidized the production of a good so much so that the prices are lower than the cost of production. This does not mean that the dumping country has a comparative advantage in producing the dumped good. This distinction can be seen in the long run. The country’s government that is doing the dumping will not be able to subsidize the production of the good forever so the prices will start to rise. After the prices rise, the cost of production will also rise thus changing the comparative advantage. The comparative advantage between two trading countries needs to be measured when the good in question is being produced without any government intervention.
So, in short, protectionist acts against REAL dumping do not undermine the principle of comparative advantage.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Importing of such cheap goods is beneficial to the consumers in the short run since they are able to buy the good at a lower price. However importing of such cheap goods is often referred to as dumping, and that is because the price of the goods is much lower than the price of the domestically produced products. The product that is ‘dumped’ is also sold at lower price than the cost of production. The reason for this is that a country might have produced a surplus and they need to sell the excess, hence they export it and sell it at very low prices in another country. This is good for consumers in the short run, or while there is a surplus. However for domestic producers this can be very harmful, since consumers of the product will most likely buy the cheap imports. This can cause domestic producers to run out of business, because they are not able to compete at this price. This can harm the nation as a whole in the long run since dumped goods will not exist forever and the dumping has harmed the domestic production of that particular good.
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is when a good is made and then sold in another country below the cost of production. In other words, it is sold in another country, below the cost of production in the country that the good was made. The distinction is important because if a good is sold in another country where costs of production are higher, but the product was made and not sold below the cost of production where it was made, then it is simply free trade.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
No, because comparative advantage is when a country is able to produce a product at a lower opportunity cost than other nation. When the concept of dumping is involved then it is no longer a question of comparative advantage since the selling of the product is below it’s cost of production and that is not what comparative advantage is about. When countries trade and think about comparative advantage then both countries should benefit from the trade, however in the case of dumping the exporting nation doesn’t benefit and in the long run the importing nation does also not benefit.
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@ Dilan Gunes
Regarding your answer to the first question?
Very good response and I liked your explanation on the topic, one question:
Are you saying that firms should lower their prices to try to sell their products, but if consumers are still able to get cheaper products will the firms then benefit from lowering their prices? Also because the 'dump' goods are sold below the cost of production and cost of production might be lower in the country that is exporting the goods, then it would be impossible for the firms to compete due to this unfair trade.
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1. A country would want to keep cheap imports out of its domestic market because it wants to safeguard its domestic industries and domestic employment. Cheap imports would make consumers happy because it would increase the demand and ability to purchase said goods. However, since the imported goods are not domestic, the country’s domestic industries will suffer because they wouldn’t be able to compete with the foreign goods. The result will be a high level of structural unemployment by the people of that country. Dumping will make the consumers happy in the short run but not in the long-run because dumping can occur when a country has a surplus of a good and decides to ‘dump’ it on another country. However, surpluses don’t last, so the country that is importing such good will be struggling in the long run when the surplus runs out.
2. Dumping refers to the sale of a country’s goods below the importing country’s costs of production. Dumping occurs where a country sells a good in an overseas market at a price below the cost of production. This will cause the domestic consumers pay more than those buying overseas. So, the importing country’s cost of production has to be higher because if it was lower, then it would be able to compete with the exporting country.
This distinction matters because if dumping referred to the sale of a country’s goods below the costs of production in the country where the good is made, then dumping wouldn’t occur because that country would never have had the surplus to begin with. Instead, that country wouldn’t be making a profit off that good at all.
3. When a nation protects its domestic market from dumping, the principle of comparative advantage isn’t being undermined because in most cases relating to dumping, protectionism against dumping is ultimately the better option for that country. Reasons for anti-dumping are legitimate: like safeguarding domestic employment, safeguarding infant industries, and allowing developing nations to diversify. Comparative advantage is the ability of one country to engage in production at a lower opportunity cost than another country. Comparative advantage is useful in determining what should be produced and what should be acquired though trade. However, comparative advantage is undermined when you take into consideration the fact that protectionism is the better choice of action for a country under certain situations.
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# Nesibe Zirzakiran
I like and agree with your comment. I agree with your answer to #1 because it’s true that in the long run the people buying an imported good wouldn’t be happy because dumping leads to structural unemployment and the domestic industries would be hurt by the imported good. The domestic industries wouldn’t be able to compete with the foreign competition.
One question I do have: for your answer to question 3, is dumping really beneficial to both countries? Wouldn’t the nation that importing the good that is being dumped actually be hurt in the long run? So would dumping only be beneficial to both countries in the short run?
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1.Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Cheap imports benefit consumers and satisfy their needs and wants extensively. As we know from the law of demand, ceteris paribus, consumption increases as price decreases. A consumer is getting "more bangs for his bucks". However cheap imports do not only present benefits. Cheap imports disadvantage the domestic industry as the domestic firms are not able to compete with such low prices [presented by foreign firms]. This will eventually cause high levels of structural unemployment in the importing country as domestic firms shut down or make cuts [they are in decline: sunset industries]. Therefore, a country will want to keep cheap imports out of the country in order to provide safety for domestic firms and domestic employment. They can do this through protectionism [by placing tarrifs on cheap imports, etc...]
2.Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is the selling by a country of large quantities of commodity, at a price lower than its production cost, in another country (below costs of production in the country where the good is made). Dumping is often performed when a country has a surplus of a good one year, and literally “dumps” it on another nation to get rid of the excess. Dumping more-often-than-not ruins domestic producers in the importing country as they are not able to compete with the "ridiculously" low prices from overseas. As said before, dumping [cheap imports] are beneficial to consumers. However dumping does not have any beneficial effects in the long-run [which is why it is "illegal"]. In the long-run, domestic firms are run out of business as they are not able to compete with the low foreign prices. The surplus in the exporting country will eventually run out and the importing country will no longer receive cheap imports [which they created a dependency on]. From this, the country will no longer receive cheap imports [possibly aid], consumers will no longer benefit from low prices, and there will be no possibility for domestic production [as most of the domestic frims were run out of business].
3.When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Yes, the principle of comparative advantage is being undermined… but for a good cause. There is no denying that dumping is bad for the importing economy. However, it does undermine the whole concept of comparative advantage. The country that is dumping a certain good on another country has both absolute and comparative advantage: they can produce that good using fewer resources [cheaper price] and at a lower opportunity cost.
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# jcuervo
I completely disagree with your answer to the second question.
Dumping does not refer to the sale of a country’s goods below the importing country’s costs of production.
Dumping does refer to the sale of a country’s goods below the costs of production in the country where the good is made [exporting country].
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1) It will definitely make consumers happy but not the domestic producers. If a country allow loads of cheap imports in its economy then country’s own producers will lose their incentives to invest in the market and contribute in the economic activities. Because cheap imports will take the attention of consumers that’s why there will be a demand on these products rather than the domestically produced ones. Also in order to compete with the imports domestic firms will decrease their price too and in order to overcome the gap they can lay off workers which will cause unemployment. So cheap goods make consumers happy but it doesn’t mean that government and domestic producers become happy at the same time.
2) Dumping means that the sale of a country’s product below the cost of production, to another country. The main reason for this meaning is to provide the goods at a much cheaper price. If the meaning was other way around then it would be free trade.
3) No, when a nation protects its domestic market from dumping the principle of comparative advantage is not undermined. Because comparative advantage means that a country can produce a product at a lower opportunity cost than any other countries. On the other hand, what dumping is that selling a product below its cost of production. So for comparative advantage both of the countries will benefit however, for dumping the export country does not benefit from the situation at all, as well as the importing country in the long run because of the unfairness of the dumping.
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@Alexander Wallar
I really like your way of explaining the questions. It is very easy to understand and you almost talked about every necessary detail in your answers. Especially starting an answer with explaining the concepts really helps understanding the topic. I agree with you that "…the dumping country has a comparative advantage in producing the dumped good" because as you stated the goverment cannot subsidize the dumbed product forever.
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• Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country would like to keep cheap imports out of its domestic markets for several reasons.
1. It is true that cheaper products make consumers happier but it makes producers more angry because they have to compete against these imports.
2. Consumers get unhappy when national companies start to lose terrain to the foreigner imports because the national companies will try to compete and in its competition they might use some measures which are not well seen buy consumers; reducing labour force, reducing plant size and others.
3. Unemployment problems can appear on the country due to the competition.
4. There is a risk of a foreigner monopoly to install at the country if the company is able to make national firms leave the country.
Cheap goods make consumers happy but the consequences of the competition make feel consumers the opposite way.
• Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Yes, dumping is basically lowering the price of import products so much that national companies are not able to compete.
It is very important because it can cause many economic, political and social problems as explain in question 1.
• When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
No, comparative advantage will be more fair because both foreigner companies and national companies will be able to compete and stay in the market which will allow consumers to have a greater choice of products they want to buy.
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@Asucan_Odcikin
Hey Asucan;
I agree with your point on question 1, I actually said more or less the same thing.
Regarding question 2 I appreciate your very strait forward answer on the meaning of dumping.
Regarding question 3 I also agreed with you and your answer seems very clear to me thanks for that.
Jaime
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To # kerstin.ecslb.f09
I liked your point about the last question, because this shows that protection is really bad in terms of comparative advantage. If a country would like to benefit from comparative advantage, then the protection shouldn't exist, because it limits to purchasing of the cheapest products.
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1) It makes the costumers happy, but the domestic producers won’t be pleased about it. When the prices are that cheap on the imported product, it is natural for the consumers to demand those products rather than domestically produced ones. This may also lead some workers to lose their jobs to the ones work in the firms on lower wages, which causes lower prices of the products, so the government won’t want that to happen. The domestic firms competing with the international firms would have a tendency to lower the prices as well to cover the gap, but this will result in lower wages or unemployments, and this will make the labour really unhappy.
2) Dumping basically means that the selling by a country of a commodity at a price lower than its production cost, in another country. This creates the not well developed countries to suffer. The distinction matters because the other way round is the definition of free trade.
3) I think that the protection would somewhat undermine the comparative advantage. Comparative advantage is producing with the lowest opportunity cost. Dumping is selling the product lower than the cost of production. When it is done, the consumers are prevented to buy the lowest priced products, but the protection is useful in terms of prevention of unemployement. If there is protection, the comparative advantage loses importance, because there the prices will remain nearly the same, and there won’t be any chance to buy the cheapest products that are imported.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
If the goods are cheaply imported into a country, the citizen would benefit the low costs while the government would struggle to find some new ways to make the domestic firms able to compete with the global ones. As the goods imported have low prices, the domestic firms would have a fall in AD when their prices are higher. Consequently, the investment of the domestic firms fall and the system of the firms may be damaged. They may have to lay off workers or even shut down if the problem cannot be solved.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers the sale of a commodity on another country at a lower price than its cost of production. This matters because as the exporting country makes profit, the importing country suffers from the fall in AD in the domestic firms. Unless it is proved that there is dumping, and the exporting country keeps preventing the importing country to make domestic profits and it is demanding for the domestic firms to survive in such an occasion.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
I don’t think it is valid in this case. The only aim of the importing country is to protect the AD for the dominant goods in the domestic economy from the lower priced exports. However, if the country keeps the protection even after the dumping is over, the country would be undermining the comparative advantage.
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@Jaime Arias
I think your answers for the questions, especially for the first one, are very well expressed. Your answer to the first question made me see the point better since you explained it step by step.
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@Asucan_Odcikin
I disagree with your answer to the first question. I don't think that these cheap (dumped) goods make consumers completely happy. In the short run, of course, consumers will be happy that they are paying less for things that originally payed more for; but what about the long run? The consumers will not be happy when the level of unemployment level rises and they definitely will not be happy when the disinflation sets into the economy. In the long run, when these goods have an artificially low price, the consumers will not enjoy them as much.
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•Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Cheap goods is what every consumer is looking for, however, in this case, we have to consider the long-term effects before getting to happy and settling with cheaper imports. What happens when a country has to many cheap imports within its domestic markets is local firms having a lot of trouble to keep up with the low prices. Often, these cheap imports are sold at lower prices than production prices, meaning that the local firm cannot compete with such low prices, therefore on the long-term having to shut down, creating higher unemployment and a loss of domestic firms affecting the domestic economy drastically. So countries prefer to have “normal” priced imports coming in, because this allows their own firms to have an adequate share within the market, there will be lower imports, so an increased aggregate demand keeping everyone happy.
•Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to a country exporting high quantities of a commodity to a developing country at a lower cost than the cost of production. This means that the exporting country does benefit from this trade, however the receiving country is disadvantaged by the low prices, affecting the domestic AD, due to high Imports.
This distinction is important to understand how dumping can be considered as “unfair” trading.
•When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
The principle of comparative advantage is not being undermined, because comparative advantage is when a country can produce a product at a lower opportunity cost than another. Dumping is about selling a product at a lower price than its cost of production, so it is no longer a question of comparative advantage, but one of seeing if both the countries are actually benefitting from the trade or not.
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Gunnhildur Ómarsdóttir
I totally agree with you in the answer of your first question. It's one of those situations where the long-term consequnces cannot be neglected because a falling economy is very hard to stablize, so for countries to realise that cheap cheap imports are not good for their domestic economy is very important.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Cheap imports do might make consumer happier as consumers pay less, but the problem begins when the cheap imports are consumed more than domestically produced products. Consumers in a country would look to maximize their personal utility and buy the cheapest products but if imported products are much cheaper than domestically produced products than the domestic producers might find themselves without a job, for that reason a country will keep cheap imports out of the country
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of a country’s goods below the cost of production in the country where the good is made. The distinction is important because selling below the importing country’s cost of production is fair trade while dumping severely hurts the importing economy and is ‘unfair’.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Yes when a nation protects its domestic market from dumping, the principle of comparative advantage being undermined. Because if a country is able to dump than it uses its comparative advantage but because the act is might hurt the importing economy than the principle is undermined.
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Dilan Gunes
I do agree with the analysis you mad for the first question about the perspective of domestic producers and firms but regarding to question two I think that dumping has more to do with the ignoring of comparative advantage and the harm it causes the economy in which the commodities are being dumped
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy? Cheap goods do make a consumer happy in the short term. Cheap goods are goods that are sold below the production price, so domestic producers will be unable to compete. Consumers will buy the foreign cheap goods instead of the domestic goods, and domestic industries will decline.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter? It refers to the sale of goods below the exporting country’s costs of production. This distinction is important, because it is what makes it an unfair trade practice as opposed to merely a result of free trade. The exporting country is able to sell the good below their own production costs because they have a surplus, which makes it near impossible for the importing country’s industries to compete.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? It does not undermine comparative advantage. When a country practices dumping, they are not benefiting from producing the good at a higher efficiency, they are benefiting from their surplus. They are selling the good below the cost of production, so comparative advantage is not a factor.
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@yofer
I disagree that preventing dumping undermines comparative advantage. Comparative advantage is based on a country being able to produce a good more efficiently, or having a lower production cost for that good. When a country practices dumping, they sell the good below their own production costs, so comparative advantage is not really a factor.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Even if the cheap goods are so desirable for consumers government wants to keep them away for some reasons. This occasion can be called as dumping. It happens when a country produces surplus of a good, and tries to get rid of that good in another country’s market with a really low price. But if government let that, the domestic markets end up suffering from this. Overall that is the reason for it.
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to sale of country’s good below the importing country’s cost of production. Dumping is not the costs of production in the country where the good is made. This distinction matters, because if a country is producing below cost in imported country and the country is importing to the nation we can say that there is no dumping. It is kind of deal between countries and maybe the comparative advantage. But if there is no such a deal it is dumping.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
When a nation protects its domestic market from dumping, the principle of comparative advantage is being undermined. Otherwise the domestic markets can run out. Moreover, if dumping continues in a country for years like a kind of habit, it may cause unemployment.
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@Talia Greene
I liked your comment, but I disagree with some points; When a nation protects its domestic market from dumping, the principle of comparative advantage is being undermined. Because if a country does not keep cheap imports out of markets by willingly, we can say that it is the way they trade that is why that cannot be dumping it may be part of comparative advantage. So preventing this is in away preventing comparative advantage.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
The country's desire to limit cheap imports depends on the type of cheap. In situations involving dumping, the domestic government would want to prevent the flooding of the market because the prices of all goods would be driven down because of the large quantity of cheap imports on the market. If the imports are cheaper than the domestically produced goods, the domestic producers are forced to take a loss on their production. In the long run, continued losses can result in less competition because the firms loosing money will leave the market creating a dependence on cheap imports for a good the domestic economy is capable of producing. In the long run, this will increase unemployment because there will be fewer domestic firms and therefore a decreased demand for labour. The short term consumers will be happy because they will be able to purchase goods with a smaller opportunity cost, but the long run creates unemployment, dependence, and instability in the market.
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is releasing a large quantity of an export on a market for less than the domestic country's cost of production. The distinction is important because if it is less than the cost of production of the exporting country, the firm would not want those goods on their market because it would drive the price down. Also because if it is above the cost of production for the firm but below the cost of production for the importing country, it can be seen as a situation of comparative advantage where the exporting country has an advantage in capitol, resources, or efficiency.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
The principle of comparative advantage is being undermined to an extent. The dumping country would have the comparative advantage because they produced a surplus using the same amount of resources the importing countries would have; however, dumping should be limited because the comparative advantage for the dumping country is not one that will be present in the long term but rather an accidental or lucky advantage because of a good year. The country who is being dumped on may typically have the comparative advantage, and their anti-dumping measures and ensuring the stability of their economy as well as the long-term stability of the global economy and the preservation of the concept of comparative advantage.
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@ Merve, I like your post, but I disagree that the presence of cheap imports on the market must be dumping. Sometimes the presence of cheap imports can be the result of a comparative advantage or an absolute advantage.
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-Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
A country may want to keep cheap imports out of its domestic markets. If the domestic economy must have a competing market, and they must have fairly similar products, then there is a pretty good reason to keep the cheap imports out. This market would directly compete with the domestic one, and especially in a dumping situation, this could put the domestic market totally out of business. On the other hand, if there isn't a competing market, cheap imported goods are a great thing for consumers. However if it exists, there could be much bigger things for the consumers to worry about than just a cheap price (like unemployment, etc).
-Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping is when a country sells a good at lower than the production costs, to another country. Often times this is a surplus of production in the original country, and they are trying to get rid of the surplus. This is very significant, as the opposite is just free trade with a comparative advantage.
-When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Somewhat. While the overproduction that leads to the surplus was most often caused by a comparative advantage over the other country, they are being sold in the country in a destructive way within the importer's economy. This is more to protect the countries own business, who may or may not have a comparative advantage. Who knows, maybe it is just a big country with an absolute advantage, and just has a surplus of inefficiently produced goods.
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@HEppler
You bring up a really good point about dumping that I had never though about before in question 2. I feel like dumping may often be caused by an absolute advantaged country, overproducing, then sending the surplus where they know it will sell.
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1)None of the countries would like to lost of cheap imports which are flooding the economy since this surplus of cheap imports refer to the less business for the domestic manufacturers of similar goods, and also the workers in those firms may lose their jobs, if this happens those workers can’t spend Money so help the economy.
2) the dumping concept refers to selling a product under the price it was made in the country of origin. Therefore it is significant to make this distinction since selling a good below the importing country’s cost of production is free trade.
3) technically being undermined refers to the principle of comparatibe advantage, this is for a good cause. Everyone would like to buy good products for a less prices, but in the long term effects of this habit lead to unemployment in the domestic economy. A country has to pick its position when coping with the dumping.
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@merve
you explain the concepts very well but I dont agree with you about cheap goods need to be in the markets, because cheap products may be the result of comparative advantage or an absolute advantage.
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1. In terms of free trade and comparative advantage, it would make a lot of sense for a country to import cheap products, as it will benefit consumers, due to its low price and producers of certain products (which have a comparative advantage). However when we look at the reasons for protectionism, it would also make sense that a country would want to keep cheap imports out of its domestic market. This is simply because of the fact that local producers of a particular product (where the product is also imported cheaply), would suffer due to job insecurities (mainly caused by the low demand, since the imported products are cheaper compared to the local one). This may eventually lead to a loss of jobs.
2. Dumping refers to the sale of a country’s goods below the importing country’s costs of production (mainly caused by surpluses, or excess in the production of certain goods). I would imagine the distinction of the two statements matter, as they are completely different. One statement (dumping) refers to the sale* of a country’s goods below* the importing country’s costs of production. Whereas the other statement refers to the costs of production* in the country where the good is made, this statement would closely resemble the concept of free trade.
3. Yes, I believe to some extent, the principles of comparative advantage is being undermined when a nation protects its domestic market from dumping, simply because a nation is able to import cheap goods for consumers, and at the same time allow different firms to specialize into the production of specific products. The protection of dumping would not allow the specialization of production of products. However it can be argued that consumers’ tastes and demand towards a specific good will also have a role in the restriction of importing certain goods. Hypothetically, if the majority of a nation does not ‘like’ or consume a certain product, there is really no need for importing the particular good.
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To: Behiye Dasdemir
About your second response: I was also thinking about the impact that dumping may cause on the aggregate demand of the economy. However, I was thinking of the opposite as you were. You stated that the importing country would suffer from the fall in AD, but I was thinking of an increase in aggregate demand (which would most likely lead to inflation due to the high level of consumption).
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1.There legitimate reasons for nations to not want cheap imports in their domestic markets. The first argument is that it destroys domestic production of the same goods. These foreign firms sell their goods at a lower than production cost price; a price that domestic producers can't compete with. Consumers may be happy in the short run due to the availability of cheaper goods and services however in the long run they may be faced with unemployment as domestic firms fail to compete with the dumped goods.
2.Dumping occurs when goods are sold at a price below production costs in the producing country. This distinction is important because the opposite, selling products below the production costs in the consuming country, is the result of free trade. The producing country has the absolute/comparative advantage and thus is able to produce with lower production costs. In this case trade should continue as the consuming nation can devote its resources elsewhere to industries that have comparative advantages on the global market.
3.The principle of comparative advantage is being undermined because it gives consumers the false impression that imported goods have an equal or higher price than domestically made goods. It gives domestic industries an allocated market share, free from international competition. Yet resources are being wasted on domestic industries that are inefficient compared to their international rivals. However, in the case of dumping, there is an argument to impose protectionism. The prices being offered, in this case, by the foreign firms do not reflect their production costs and ability to produce the good or service. They have been strategically lowered to harm the production of the same good in which the good is being sold.
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@ HEppler
I agree with your answer to the first question. The lower prices in the short run will be adventageous for consumers however in the long run this could result in unemployment due to the declining production of pricier domestic goods. I also agree that protectionism should be used in the case of dumping as this is an unfair burden put upon domestic consumers to produce at unrealistically low prices. The use of protectionism should be limited as overuse may result in higher domestic prices (inflation) as well as reciprocal (retaliation) implementations by other countries.
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1.Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
This is because import form developing countries having their low cost and labor and other comparative advantages will threaten the domestic industries. The increased competition becomes a pressure and a threat as the foreign exporters keep the prices of good low. Once local customers are all attract by import goods, the domestic industry face sever bankrupt and unemployment problems.
Consumers surely are happy about cheap goods, but producers aren’t, especially the ones with lower competitiveness.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
It is below the cost of production in the exporting country and it matters because it will be natural if one resource is way cheaper in country A than in country B, making the goods made form such resource way cheaper in A than in B. Such selling doesn’t involve any bad motive but a desire to make profit by exporting. However, if A dumps its goods to B it means A is trying to get rid of the competitor B even by suffering the loss itself.
The former means that country B has totally no comparative advantages against A in producing such good and it will be better off for both economies if B just quits the industry. It reflects a fact and serves as an alarm. While the later situation is more like a price war, in which either both lose or one drops. Both will lose if the situation lasts long and neither one of A and B has money to sustain the “war”. Even if one “wins” – usually A – there may be waste of resource and low efficiency because A might not be the one who has comparative advantage. Furthermore, A may even gain monopoly power as it sweeps out its competitors, which will be the worse situation as both industry and customers in B suffer.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
If the question (as I understand) is describing a situation when a nation uses protectionism to avoid dumping done by other countries, the answer to whether it will undermine the principle of comparative advantage is no. In my opinion, dumping is the action that has violated such principle because the final winner – the one who sells – is not determined by the fact that who has lower opportunity costs but who can sustain a price war for longer time. The winner may not have higher efficiency in producing such goods as the “loser” and it doesn’t lead to better off for both trading country. Protectionism in this case, therefore is a means to protect the principle of comparative advantage as it prevents countries from dumping. (Although free trade is restricted, it is better than the situation I described in question 2)
@Asucan_Odcikin,
If dumping does mean that goods are sold in foreign country at lower price than the production cost in the importing country, as you said, don’t you think the exporting country may also suffer the low price if they have equal comparative advantage? Free trade, which is meant to be fair, decides the one who has comparative advantage to win and dumping is not in the category because it goes beyond the principle of comparative advantage. I don’t agree with you as I think you suggest dumping is making use of comparative advantage.
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1.)Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy? Domestic products are much more significant then the cheap products for a country. Of course the countries need cheap products in order to fulfill the consumers' needs more with cheap prices. However, with supporting domestic products, the small markets made up of local producers won't have to be in a shut down position, supporting those domestic products will save their jobs.
2.)Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
Dumping refers to the sale of a country’s goods below the importing country’s costs of production. However, the second explanation which is 'costs of production in the country where the good is made' is totally the case in free trade with a comparative advantage as the exporting country is advantageous so as its own land.
3.) When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
I don't agree with this statement at a point. Dumping is when the exporting country sells with lower cost; but if the exporting country sells higher, in this case we can think about the principle of comparative advantage.
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1. A nation might want to keep cheap imports out of its domestic market since cheap imports hurt domestic firms. While consumers might want to buy cheaper goods, there are some consumers that would prefer to help out domestic firms and buy their goods.
2. Dumping refers to the sale of a country’s goods below the costs of production in the country where the good is made. This is an important distinction to make because it demonstrates the winners and losers in this situation. The country that is exporting the good benefits from dumping whereas the country that is importing is more negatively affected.
3. This is not undermining the principle of comparative advantage. When dumping occurs, the importing country is taking advantage of its own surplus to be able to sell a good at a lower cost. Comparative advantage is a different concept, where both countries can benefit from trade.
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@Chamonix,
I agree with what you answered for question 1 about how cheap goods make consumers happy, but don't necessarily make producers happy. I think you make a good point that these cheap goods have negative consequences such as more unemployment and drops in output. However, do you really think the competition from outside should be considered unfair? I think that obviously the competition is not good for domestic firms, but I don' think it can be considered unfair. I think it is better explained by saying that these countries just have a comparative advantage in producing this good.
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Nations are not willing to import cheap products because it often destroys the domestic market. Of course if the cheap imports is on the goods that is not produced or resources does not exist in the nation, there is no reason to keep it out of the country. The basic market theory says that if there are same goods in the market, consumers tend to buy cheaper goods. Therefore, if cheap products are imported, then consumers would buy imported goods not the domestic good, which would damage domestic output seriously
Dumping refers to the sale of a country’s goods below the importing country’s cost of production, not below the cost of production in the country that exports the good. This distinction is tells reason why developing nations targets developed nations, such as Europe, to ‘dump’ their goods. If the cost of goods were below the cost of production of country that produces the good, the firms would not be able to make any profit but would rather loss money, because they even cannot compensate their cost by selling products. However, if it’s below the cost of production of importing nation, it would cause no harm but rather increase the market share in the market and eventually help those exporting nations to increase their profit. For instance, in China, cost of production is cheaper than that in Europe, because labor force is abundant. Let’s say the cost of production in China is 100$ per goods and 200$ per goods in Europe. If China exports their goods in 170$, it is really profitable for Chinese firms but it would be really harmful for European economy, as people would buy cheaper Chinese goods, not expensive European goods. Chinese goods will defeat European goods in price competition, because its price is even lower than the cost of production of European goods.
The principle of comparative advantage is undermined in this situation, as it means nations have to import relatively cheap goods in more expensive cost, but it causes no harm for nation as it is designed to protect the domestic market. This would lead to the increase of output in the domestic market by limiting imports, which would contribute to the economic growth of domestic market.
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@Chloe Colberg
I agree with your idea that cheap goods are limited to protect the domestic market. You mentioned the consumer’s willingness to buy cheaper imported product, so I just wondered if the protectionism is a violation of consumer’s right to buy cheap and good products. I also agree with your idea about the second question. But for the third question, I think dumping is related with the comparative advantage, because nation with comparative advantage is the one that is capable of providing goods in cheaper price – it can be cheaper than the cost of production of importing nation, which is related with the dumping. I see the points in your argument, but I think it does undermine the theory related with the comparative advantage.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
-yes, however if there is s surplus, and if there are sales at lower than the production price, It can ruin the economy of complementary products and other producers in the countries.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
-It refers to the sale of the countries goods below the cost of production of the importing countries. This is because the importing country is the one who’s economy will be affected by the dumping.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
-Sort of, because the comparative advantage can’t be imported, however if dumping has allowed the local comparative competition to go out of business, then It doesn't matter because then the country can’t sustain itself.
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# Quinn Richardson
i like your response to question number three, how it gives consumers false impressions about the prices of imported goods, and how dumping can ruin the local economy.
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1-) Countries want to keep cheap products out because these products can threathen the domestic goods. Cheap goods can be satisfactory for consumers, but it will result in profit loss for local producers. Thus, the economy of the country can face with some problems because of the trade imbalance.
2-) Dumping means that the goods are sold below the cost of production in the country in which the goods are made. Dumping is important because it can result in affecting a country that the local firms will not be able to compete with other markets.
3-) The principle of comparative advantage is being undermined. However, comparative advantage undermines the purpose of free trade because it can create a huge difference between poor and rich. I think there are two possible results of comparative advantage. First is all countries will depend on each other. Second is that countries will choose to have the resources by wars instead of depending on each other.
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Hi Suyeon,
You said that the protectin of local firms can be violation of consumers' right to have cheaper products.However, I believe that if we think of the long term, protection of local firms means protection of citizens, because the improvement of local firms will make more people employed and it will raise the standard of living.
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Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
-Of course cheapness is a good thing for consumers. Because they pay less money to buy something. Also this is a good situation for governments, too. Because government pay less money to import those products. Until this point cheapness is a good term for consumers and government. But for domestic firms it is not a good thing. Because of the low prices the firms are going to decrease their prices. After this, a situation occurs:"Dumping". In international trade, this occurs when one country exports a significant amount of goods to another country at prices much lower than in the domestic market. (http://www.investopedia.com/terms/d/dumping.asp#axzz1b10Eyb8U) Because of this situation unemployment will increase because production will be less.
Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
-In international trade, this occurs when one country exports a significant amount of goods to another country at prices much lower than in the domestic market. (http://www.investopedia.com/terms/d/dumping.asp#axzz1b10Eyb8U) Distinction is important for a country because distinction give to the country the chance of exporting the products with a lower price which is lower than the production cost.
When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
-Comparative advantage occur when a country use lower opportunity costs to produce the goods.
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@Ozge_Elif
Thanks for your answers. Especially for the 3rd question. I couldn't undrstand the question but after reading your answer I undrstood better.
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A country wouldn’t want cheap goods in its domestic economy in order to protect its own firms. Because with cheap imports, there will be less domestic manufactures of same good and the workers who are working in these firms would lose their jobs. On the other hand the consumer welfare increases with cheap goods as more people are able to pay the price for that product, while these cheapness may harm some domestic firms.
Dumping is basically the sale of a country’s goods with a price that is lower than the price that the exporting country sells the goods in their own country. The distinction is important because otherwise, if it was the sale of a country’s goods below the importing country’s cost of production it would mean that its simply free trade and not dumping.
No because if a nation does not prevent the domestic market from dumping it will have negative effects on the internal industry of the country. However, if a country’s domestic market is protected, it is protected from all outside effects.
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@Ozge_Elif
I agree with your first response. Especially the "Cheap goods can be satisfactory for consumers, but it will result in profit loss for local producers." sentence gives the answer of the question.
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1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Cheap imports affecting domestic markets in a bad way because they cannot compete with cheap imports so their profit becoming less so a country want to keep cheap imports out of its domestic markets. Consumers may satisfied by cheap goods but it is affecting domestic firms in a bad way so domestic economy affecting in a bad way by cheap imports so a country want to keep cheap imports out of country. For example, in Turkey there are lots of cheap good came from China and government try to reduce them in order to protect domestic markets.
2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
It refers to the sale of a country’s goods below the importing country’s costs of production, because if there was no distinction matter, it will be free trade and there won’t be dumping. There is this distinction because for example China has big labour force so it can easily produce goods at lower costs so when it export its goods to other country there can be dumping.
3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
Yes it is undermined because consumers won’t be able to buy goods at lower prices but also it is necessary to protect domestic market because they important for economic growth of country.
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@Muhammet Murat Sekban
I agree with your definitions and comments but I think that you should explain your comments with some examples.
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• Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
The cheap goods might make consumers happy, but the domestic industry that produces those goods will not be happy. Unable to compete with the lower prices, the workers might become unemployed.
• Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
The importing country's costs of production. This is an important distinction because if the dumped goods were sold at a price greater than the importing country's costs of production, then the domestic industry would be able to compete and stay healthy. The costs of production for the country where the goods are made is more or less irrelevant, except that it should be less than the importer's.
• When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
It is undermining the principle of comparative advantage, but for a good reason. Protecting domestic markets may lower the possible consumption for consumers, but the workers will still have jobs.
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@Ozge
But comparative advantage is the argument behind free trade, isn't it?
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1.Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
Although cheap imports benefit domestic consumers they harm domestic producers. If domestic producers cannot compete with the cheap prices from abroad they will have to reduce average production costs or shut down as a consequence they will have to fire workers. Thus overly cheap imports can lead to unemployment and thus harm domestic economy.
2.Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
It refers to the sale of a country’s goods below the cost of production in the country where it is made. This distinction matters because the principles of comparative advantage and thus the gains from trade will be eliminated.
3.When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.
No because a country which dumps products may not actually have comparative advantage. It may produce with more production and opportunity costs than the country the good is dumped to but simply understates the goods value.
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I agree with your last point, but does it undermine comparative advantage. I believe it does not.
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