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Protectionism: The anti-dumping argument

Summary:
Dumping is the idea that foreign businesses may export products cheaply — or even below cost — into your country, in the hope of squeezing out local producers. Having captured the market, they can then put prices up again.This predatory dumping may be rarer than imagined. In order to capture a country’s market and then raise prices a company would have to see off all other sellers. That is unlikely to happen — so why bother trying>But there are many reasons why exporters might sell their products cheaply or below cost. They might have produced goods that have failed to sell or might have a temporary overstock to clear. So it makes sense to sell them for whatever they can raise. That is a boon for consumers, but it is not likely to cause much harm to producers.The real problem, though, is

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Dumping is the idea that foreign businesses may export products cheaply — or even below cost — into your country, in the hope of squeezing out local producers. Having captured the market, they can then put prices up again.

This predatory dumping may be rarer than imagined. In order to capture a country’s market and then raise prices a company would have to see off all other sellers. That is unlikely to happen — so why bother trying>

But there are many reasons why exporters might sell their products cheaply or below cost. They might have produced goods that have failed to sell or might have a temporary overstock to clear. So it makes sense to sell them for whatever they can raise. That is a boon for consumers, but it is not likely to cause much harm to producers.

The real problem, though, is when governments get involved in business. Predatory governments subsidise their industries or maintain a cheap currency in order to undercut other nations. They might even use exploited or slave labour to produce export goods at very low cost. China, for example, has been accused of all those things.

If the World Trade Organisation cannot stop such practices, it is neither surprising nor altogether wrong that the victims might respond with trade barriers against it.

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Dr. Eamonn Butler
Eamonn Butler is Director of the Adam Smith Institute, rated one of the world’s leading policy think-tanks. He has degrees in economics, philosophy and psychology, gaining a PhD from the University of St Andrews in 1978.

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