Dumping, the practice of flooding a market with cheap imports, is getting more and more media attention. One reason is that its impact is more noticeable with the increasing global trade between nations. In this article, we'll look at dumping through a free market perspective.
Key Takeaways
- Dumping involves a foreign entity overwhelming a market with an abundance of low-cost goods.
- When dumping occurs as a direct manipulation of markets in an attempt to kill a specific domestic market, it may be considered predatory.
- In some cases, dumping may be a valid form of trade if one country simply has a large excess of procured goods.
- Cheap imports may benefit domestic users and consumers as the input for costs may be lower.
- Nationalism plays a natural part in overcoming cheap exports, as some may be willing pay higher prices (or incorrectly assume domestic products are superior) for U.S. products.
Dumping vs. Predatory Pricing
Dumping is blamed for killing off domestic production, leading to layoffs in industries that compete against cheap foreign goods. The usual argument states that the products are unfairly priced—that is, the producing country is selling them below cost.
Here is where problems crop up. Predatory pricing occurs when goods are purposely sold at a loss and it has proven to be flawed at every turn. When a company sells goods at a loss in the hope of killing a domestic market, it usually backfires. In most cases, the consumers and the producers buy up the product because it is cheaper and, whereas consumers use it, the producers sell the foreign product back on the international market at a fair price.
Therefore, a company using predatory pricing would have to sell at a loss to every country and may go bankrupt before forcing out all other producers. Some producers may be forced to shut down temporarily, but could quickly start up once the company selling at a loss is forced into raising prices again to make a profit.
Giving Trade a Bad Name
If we assume dumping does not involve goods being predatorily priced—that is, goods that another nation can make cheaper than any other—then the correct word is simply "trade," not dumping. The amount of product being sold doesn't matter. How much constitutes dumping anyway? Is Toyota (NYSE:TM) guilty of dumping because so many Americans buy its cars?
If a foreign company, or a domestic one for that matter, is producing more goods than there is a demand for, it can't force consumers to buy. The idea that a company is "dumping" goods in a market suggests that consumers don't have a choice about whether to buy or not. In reality, flooding a market with excess supply will probably just lead to large unsold inventories. These inventories may then be discounted to clear, guaranteeing that consumers get a good deal, but ultimately cutting the producer's profits on that product.
Taking a real example, much has been made about China "dumping" cheap textiles into foreign markets. China can do this because its labor costs are a fraction of those of almost every other nation. If you work in textile production, cheap Chinese goods may result in a pay cut or even the loss of your job. This is understandably bad.
The Flip Side
On the flip side, cheap imports mean that more Americans enjoy lower prices at shops that stock Chinese textiles and people in retail sell more. Retailers see their profit margins go up, and the investors in those retailers see some of the profit. Some of these profits, garnished from the reduced costs of labor in China, will be spent by investors and retailers, as will the savings that consumers enjoy.
In this way, the "dumping" can become an overall boon to the economy. Additionally, the resources and labor that were tied to the domestic textiles industry can now be used somewhere where the U.S. has an edge.
A Hard Choice
In time, wages may rise in China and cause a resurgence in the domestic market as their product gets more expensive, or maybe people will choose the quality of U.S. textiles over the price of imports. In the meantime, it's better to move on to areas where there is an absolute or comparative advantage.
To put it bluntly, American laborers have wage expectations that make textiles an unprofitable industry, so they have to find an industry where their wages are justified or accept lower wages.
The only other choice is to subsidize textiles with taxpayers' money—either through tariffs, quotas, or outright government loans—making clothes more expensive. This reduces the paycheck of every American to keep a select few Americans working. Unfortunately, this latter case is the standard practice of government in industries with powerful unions that vote as a block or in situations where a political angle exists.
Protecting Industry Without the Government
The solution to the worst effect of dumping—domestic job loss—may simply be to differentiate products. If there is an area where foreign products are often faulted, it is in consumer safety. Components and products that are easy to mass-produce are often outsourced to developing nations where labor is cheaper.
Because the competition between these nations is fierce, corners often get cut. This can result in unsafe chemicals being used on the products or simply inferior components that lead to lower product quality. The negative perception of these products gives clever American producers an edge. If enough people turn their backs on the better value per dollar of "made in" products, then American producers have an additional chance to differentiate their products.
Consider a 2018 study by Bookings Institute that rated the United States with the third best manufacturing scorecard. The U.S. scored the best marks on labor support, hazard exposure, risk, and pro-business. By comparison, Indonesia failed to receive the same rating in any of these categories.
Even disregarding actual manufacturing conditions, there is something to be said for nationalism and the belief in one's country. A 2020 study by Reshoring Institute revealed that nearly 60% of Americans would pay more a product made in the USA. In addition, though no evidence was offered that domestic-made products were better, 47% of respondents stated products in the U.S. were better quality.
Why Are Imports Important?
Imports may be critical to a country functioning. That country may not be able to efficiently manufacture the good and therefore must rely on other producers to make and sell the good to them. Consider the example of produce or fruit. Certain geographic regions of the world are better to grow food; these areas should dedicate resources in doing so, then sell goods to areas of the world that would be unable to produce certain foods.
What Is the Impact of Cheap Imports?
Lower price imports may benefit domestic companies and industries. These companies may be able to buy goods for cheaper than they otherwise would have been able to. Therefore, cheaper imports may foster competition domestically about how to best source goods. Cheap imports also have the impact of driving the need for externally-produced goods, creating a dependence on another country.
Why Do Countries Discourage Cheap Imports?
Countries may be motivated to be self-sustaining. They may want to make sure they are able to rely domestically on getting the materials or goods they need. They may also be defensive about keeping jobs domestically and not having to rely on international labor to source goods.
How Do Tariffs Impact Cheap Imports?
Tariffs impact the consumer because it adds an additional expense on the imported good. The importer often has to pay the tax on the good they are importing. Therefore, the importer often passes this cost along in the final price of their manufactured good. If a government attempts to discourage cheap imports by imposing tariffs, some importers may seek other cheaper domestic options.
The Bottom Line
Cheap imports help the person with a tight budget searching for the best value for their dollar. They may hurt the paycheck of workers in industries being pushed out by foreign competition, but that reduced paycheck will also go further at the shopping mall because of that same competition. Basically, a small group will suffer for the greater good, and that suffering may include retraining and a job search if their industry is completely squeezed out. Tariffs and anti-dumping quotas, however, harm the many in favor of the few.
If domestic industries are dying out, it's because the consumer is not willing to pay a premium for the American counterpart of that product. If people want American-made goods, there will be a niche for differentiated domestic brands—a niche that consumers create through demand, not through any government initiative. Only through differentiation can these "lower-end" products survive.
Dumping, international trade by another name, isn't something to fear. Rather it should be a spur for domestic industries to innovate and seek out competitive and comparative advantages. Tariffs and anti-dumping quotas, in contrast, are a recipe for stagnation and taxpayer bailouts.
FAQs
What is the impact of cheap imports? ›
Lower priced imports create competition for domestic industries and allow home-based manufacturing businesses to source cheaper intermediate and capital goods.
What are the costs associated with importing goods? ›Some of the import costs include the cost of the products, currency conversion costs, international freight & logistics charges, import charges, port charges, customs clearance fees, import duties & taxes and local delivery, to name a few.
What are cheap imports? ›Edit. A high amount of Cheap Imports is a situation where a consumers start buying foreign-made products instead of domestic products in large numbers, causing the nation's GDP to fall by up to 12% and upsetting the country's Trade Unionists.
What is the economic impact of importing goods that the United States could produce? ›Impact of imports on economic growth
Imports reduce our dependence on domestic production. Indeed, when we increase imports, the increase in output does not occur at home but abroad. As a result, increased imports stimulate production and economic growth in the partner country (as opposed to exports).
What Is the Impact of Cheap Imports? Lower price imports may benefit domestic companies and industries. These companies may be able to buy goods for cheaper than they otherwise would have been able to. Therefore, cheaper imports may foster competition domestically about how to best source goods.
Are imports good or bad for the economy? ›A country's importing and exporting activity can influence its GDP, its exchange rate, and its level of inflation and interest rates. A rising level of imports and a growing trade deficit can have a negative effect on a country's exchange rate.
How much are import charges in the US? ›The amount of import tax and duties to be paid depends on the country from which the goods are imported. Duty tax rates are between 0 to 37.5% with the typical rate being 5.63%. A flat rate of 3% applies to e-commerce purchases that are in excess of the US import tax threshold limits.
Why do imported goods cost more? ›Because an importer has to pay a tax in the form of tariffs on the goods that they are importing, they pass this increased cost onto consumers in the form of higher prices.
Is importing goods profitable? ›One of the great things about import/export businesses is that they can provide good profit margins with fairly minimal investments, and manageable operating costs.
Which country has lowest imports? ›Hong Kong and Singapore along with Macao have the lowest import tariffs.
Why is it so cheap to import from China? ›
The production cost of the products is lower. This is due to Chinese manufacturing, which has numerous specialized companies that offer a wide variety of products with a high level of quality and technology. This allows them to offer products at lower prices.
Which country imports the least goods? ›Imports of goods and services as percent of GDP, 2021 - Country rankings: The average for 2021 based on 160 countries was 47.14 percent. The highest value was in Hong Kong: 198.7 percent and the lowest value was in Sudan: 1.88 percent. The indicator is available from 1960 to 2021.
Why is the US economy so strong? ›There are two things that matter to an economy in the long term: the size of its workforce and the productivity thereof. A higher fertility rate and a more open immigration system have long given America a demographic advantage over most other wealthy countries, and that continues.
Is the US economy strong? ›The newest data suggests the U.S. economy is slowing down. Consumers are still spending, and companies are still hiring and investing, but not at the same pace as last year. At the same time, the economy continues to defy predictions of an imminent recession.
Why does the US import so many goods? ›Why America Imports So Much. Although America can produce all it needs, China, Mexico, and other emerging market countries can produce it for less. Their cost of living is lower, which allows them to pay their workers less. Thus, they are better at producing what U.S. consumers want than American companies could.
What are disadvantages of importing? ›- Foreign exchange risk. There is the danger that there will be a sudden large change in the currency exchange rate. ...
- Piracy risk. Even if rare, this possibility must be considered.
- Political risk. There are many scenarios where this may be a hindrance. ...
- Legal risk. ...
- Cultural risk.
- Declaring the correct value to Customs. ...
- Free Trade Agreements (FTAs). ...
- Customs brokerage fees. ...
- HS Classification. ...
- Freight charges. ...
- Declare an earlier invoice. ...
- You should also look at all special Customs programs available for use, such as:
When a country exports more goods and services than it imports, it creates a trade surplus. A trade surplus can represent a healthy economy, as it demonstrates a positive flow of currency from foreign entities. Meanwhile, a country that imports more than it exports represents a trade deficit.
Is the US an import economy? ›About. Overview In 2021, United States was the number 1 economy in the world in terms of GDP (current US$), the number 2 in total exports, the number 1 in total imports, the number 7 economy in terms of GDP per capita (current US$) and the number 10 most complex economy according to the Economic Complexity Index (ECI) ...
Who benefits from imports? ›Question 1) From the imports, the domestic consumers are benefitted. This is because the domestic consumers would like to import the good beca…
Why do people import goods? ›
Countries are most likely to import goods or services that their domestic industries cannot produce as efficiently or cheaply as the exporting country. Countries may also import raw materials or commodities that are not available within their borders.
Does U.S. pay import tax? ›Any commercial importation, i.e., not for personal use, is subject to entry requirements and payment of applicable duties, fees, and taxes.
How much can you buy in the U.S. without paying duty? ›In most cases, the personal exemption is $800, but there are some exceptions to this rule, which are explained below. Depending on the countries you have visited, your personal exemption will be $200, $800, or $1,600.
Which country has the highest import tax? ›Currently, the countries with the highest tariff rates in the world (in weighted mean across all goods) are the island nations of Palau (34.6 percent), Solomon Islands (30.3 percent), and Bermuda (27.6 percent).
What is the most expensive import? ›| Rank | US Import Product | 2022 Value (US$) |
|---|---|---|
| 1 | Crude oil | $204,715,565,000 |
| 2 | Cars | $168,337,379,000 |
| 3 | Phone devices including smartphones | $126,687,473,000 |
| 4 | Computers, optical readers | $123,819,128,000 |
For one, labor costs are lower, therefore production and processing costs are lower. And, climate, specifically one that does not experience extreme seasonal changes, can allow for year-round growing of a particular food. The more robust the quantity of a product, the less 'valuable' and expensive.
Why are local products cheaper than imported? ›Imported products are more expensive than locally made products because the governmentwants to promote the development of local businesses. Also, custom duties and other taxeshave to be paid on imported goods.
How do importers make money? ›As an import/export company, you'll make a profit by selling products at a higher rate than you paid for them from the vendor or source.
What goods do we import the most? ›- Minerals, fuels, and oil – $241.4 billion.
- Pharmaceuticals – $116.3 billion.
- Medical equipment and supplies – $93.4 billion.
- Furniture, Lighting, and Signs – $72.1 billion.
- Plastics – $61.9 billion.
- Gems and precious metals – $60.8 billion.
- Organic chemicals – $54.6 billion.
World's 10 Largest Importers
The United States is the world's largest importer of goods, followed by China and Germany. Overall out of the world's 10 largest importers, 4 countries are in Europe, 4 are in Asia and 1 from North America and 1 from Central America.
Who does the US trade most with? ›
| Rank | Country | Total Trade |
|---|---|---|
| --- | Total, All Countries | 303.6 |
| --- | Total, Top 15 Countries | 226.5 |
| 1 | China | 51.4 |
| 2 | Canada | 44.9 |
Based on data from the World Bank, Switzerland, Singapore, and Hong Kong are among those that impose no tariffs on imported products and materials.
Who is the biggest importer in the world? ›The United States, China and Germany are the leading import countries worldwide, and also the leading export countries worldwide, albeit in a different order.
Is China cheaper than the US? ›Cost of living in China is 44% cheaper than in United States.
How cheap is Chinese labor? ›What's less well known is that the average worker earns just 75 cents an hour. Migrant workers—who account for one-fifth of the 750 million people in China's labor market—typically earn less than $130 a month. When you are making that kind of money, a five-cent-an-hour raise is a significant increase.
Are things cheaper in China than US? ›Generally speaking, the price of consumer goods in the U.S. is lower than in China, but the price of service is higher. In other words, the U.S. has cheap manufactured goods, while the Chinese advantage falls on lower labor costs.
Is USA a net importer or exporter? ›Example: The United States as a Net Importer
The United States, a consumer colossus, has been a net importer for decades.
#1 Singapore
Read More About SingaporeSingapore's economic freedom score is 83.9, making its economy the world's freest in the 2023 Index. Its score is about the same as last year.
- Low labour market participation.
- High household debt.
- Polarised political landscape.
- Decrease in fertility rate.
- Outdated infrastructure.
- Growing income and wealth inequalities overlapping with territorial and racial inequalities.
- Trade conflict and technological competition with China.
The integration of far-flung settlements required new technologies — steam engines, canals and railroads — setting the country on a natural course to industrial development. In sum, slavery and conquest created the foundation upon which the U.S. economy grew.
Who controls the world economy? ›
The IMF monitors the international monetary system and global economic developments to identify risks and recommend policies for growth and financial stability. The Fund also undertakes a regular health check of the economic and financial policies of its 190 member countries.
Does the US have the #1 economy? ›With a GDP of 23.32 trillion dollars, the USA is by far the world's largest economy in this ranking for 2021.
Is the US the top economy in the world? ›According to the latest available data from the World Bank, the United States of America is currently the world's largest economy, with a GDP of over $23 trillion in 2021.
Is the US still the world's largest economy? ›America is the world's largest national economy and leading global trader. The process of opening world markets and expanding trade, initiated in the United States in 1934 and consistently pursued since the end of the Second World War, has played an important role in the development of American prosperity.
Does US rely heavily on imports? ›The US is the largest importer in the world, and the second-largest exporter (next to China).
Why aren t more products made in America? ›More US companies send their manufacturing production overseas, primarily to China. Doing so provides several significant advantages, including: Lower costs. Cheaper labor.
Who imports the most into the US? ›The top five suppliers of U.S. goods imports in 2019 were: China ($452 billion), Mexico ($358 billion), Canada ($319 billion), Japan ($144 billion), and Germany ($128 billion). U.S. goods imports from the European Union 27 were $515 billion.
What happens when imports are less than exports? ›If exports exceed imports then the country has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country or area has a trade deficit and its trade balance is said to be negative.
Why do imports weaken currency? ›The balance of trade (which reflects higher or lower demand for a currency) can affect currency exchange rates. A country with a high demand for its goods tends to export more than it imports, increasing demand for its currency. A country that imports more than it exports will have less demand for its currency.
Does less imports increase GDP? ›As such, the imports variable (M) functions as an accounting variable rather than an expenditure variable. To be clear, the purchase of domestic goods and services increases GDP because it increases domestic production, but the purchase of imported goods and services has no direct impact on GDP.
Why import tariffs are bad for the economy? ›
The disadvantages of tariffs are as follows: Raise the price of the good or service because of increased taxes. May lead to shortages by discouraging one country from exporting goods or services to another. Increase friction between two countries, hurting their long-term relationship.
Is it better for a country to export more or to import more? ›Exporting more can bring in valuable foreign currency and boost a country's economic growth while importing more can provide consumers with access to a wider variety of goods and services at lower prices, which can improve their standard of living.
Why is it bad for a country to import more goods than it exports? ›Meanwhile, a country that imports more than it exports represents a trade deficit. With a trade deficit, more money flows out of the country to foreign markets rather than into it. As a result, the country may need to borrow money to pay for additional imports and cover its deficit.
Why is the U.S. dollar so strong? ›The dollar's value comes from the US' position as a critical global economic power and the country's political and economic stability. While it may hold less value than such currencies as the Swiss franc or the British pound, the dollar's global use makes it a more commercially viable currency.
Who benefits from a strong U.S. dollar? ›The dollar is strong because the US economy is healthier than those of many other countries and because the Federal Reserve keeps raising interest rates. A strong dollar hurts stocks of US companies that operate internationally and may help stocks of companies that export products to the US.
Where is the dollar strongest? ›Mexico. The Mexican Peso is the strongest it has been in five years. Even with this impressive growth, your dollar still has an advantage here. A meal in Mexico could cost you just $5.
How does the US export inflation? ›A lower value currency makes the goods of this country cheaper to foreign buyers, which puts pressure on exports to increase and imports to decrease. The trade balance thus flows in a cycle – when imports exceed exports, the decrease in the value of the nation's currency pushes them back in line.
Do imports increase in a recession? ›The fall in consumption is often small, but both industrial production and investment register much larger declines than that in GDP. They typically overlap with drops in international trade as exports and, especially, imports fall sharply during periods of slowdown.
Is having more imports than exports bad? ›In the simplest terms, a trade deficit occurs when a country imports more than it exports. A trade deficit is neither inherently entirely good or bad, although very large deficits can negatively impact the economy.
What is the #1 export from the U.S. to China? ›In 2021, of $151.1 billion in the U.S. exports to China, the top commodity were Machinery and Mechanical Appliances (23.9% of the total U.S. exports), Agriculture (20.9%), and Chemicals, Plastics, Rubber and Leather Goods (16.6%).
How would high tariffs hurt America? ›
Tariffs hurt consumers because it increases the price of imported goods. Because an importer has to pay a tax in the form of tariffs on the goods that they are importing, they pass this increased cost onto consumers in the form of higher prices.
Does China have tariffs on U.S. goods? ›Tariff Rates
Since China is a member of the WTO, imports from the United States are assessed at the MFN rate. The five Special Economic Zones, open cities, and foreign trade zones within cities offer preferential duty reductions or exemptions.