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China, one of the world’s fastest growing economies, has lately given Western and Asian counties countless investment opportunities and economic trade incentives. Although China now plays a major and decisive role in the world economy, this was not always the case. As recently as 1978 many experts perceived China as having little to no economic impact on the rest of the world. However, by 1994 China had become the 10th largest world economy, excluding Hong Kong, and China’s significance continues to increase. (Cable and Ferdinand 1994) Furthermore, although many experts believed the China had a limited impact on the world economy due to its communist ties, those ties have been severed. China has not only been embracing a market style economy for many years, but just recently legalized private property, essentially killing communism all together. (Bodeen 2007)
China’s current show of economic force has causes both reasons for celebration and concern among economists world wide. On the one hand Chinas growing economy opens up the door for extensive investment opportunities, while on the other hand the door to wide-ranging, and possibly harmful, competition also sways ajar. In recent years a substantial amount of attention has been paid to dumping as one of those cases in which the door swings wide open. The spotlight has focused on cases involving goods not only exported from, but also imported to China. Many countries have clamed that China has been dumping its manufactured good into their markets to the detriment of their domestic firms. China, in response, has claimed that many countries have been engaging in the same practice with respect to good sold to Chain. Even though cases of dumping do exist, much of the worry regarding dumping has more to do with political concerns then it does with actual economic ramifications.
Economic dumping has many causes as well as many responses. Dumping occurs when a firm sells a product in a foreign market for less than it sells the same product in its own domestic market. (Krugman and Obstfeld 2006) There are, in fact, many reasons why a firm would want to partake in this practice, however dumping is generally regarded as an unfair business practice. Politicians are concerned that when a foreign country partakes in the practice of dumping, their own domestic manufactures suffer. For example, China has been able to produce furniture at a fraction of what U.S manufactures have been able to produce at. The result of China’s ability to produce and sell at a lower cost has caused many American firms to claim that China has been dumping furniture into the American market. The American firms further claim that the Chinese dumping has caused approximately 34,000 Americans to loose their jobs, dozens of plants to close, and furniture prices to dramatically fall. (Engardio and Roberts, Wielding A Heavy Weapon Against China 2004) In response the United States has assessed a large punitive tariff of up to 198% on Chinese furniture in hopes that the higher cost will drive American consumers away from Chinese furniture and back to domestically produced furniture. (Engardio, Dumping: China Strikes Back 2004) American officials argue that unfair “foreign pricing and government subsidies distort the free flow of goods and adversely affect American business in the global marketplace." On that note, The Department of Commerce has been vigorously committed to the enforcement of law that protect against what they view as unfair trade. (Odessey 2005) What seems not to be taken into consideration, though, is the impact such a policy can have on the American consumer. If the Commerce Department does impose a high tariff on Chinese furniture then the price of furniture sold in the United States will undoubtedly increase. This means that although there will be a significant benefit to the American furniture manufacture, there will be a significant cost to the American consumer. In this case, the benefit does not necessarily justify the cost.
Furniture is not the only Chinese industry that has been accused of dumping. For instance, the European Union (EU) first accused China of dumping saccharin back in 1979. The EU has also accused China of dumping color televisions and investigated dumping charges with respect to energy efficient light bulbs. In addition, the United States has accused China of dumping hand trucks, crepe paper, shrimp, plastic shopping bags, ironing tables, steel fence posts, color televisions, and iron pipe fittings. (Odessey 2005) Around the year 2000 alone China had been served with over 53 anti-dumping cases. (people.com 2000) All-in-all, many counties, not just the United States, have had reasons to fear the impact China’s growing economic clout will have on their own domestic production.
Although there have been many charges of dumping made against China, they may not have always been warranted. Frankly, China has become an easy target for U.S. anti-dumping cases partly because of it over $124 billion annual trade surplus. In addition, investigators have not been investigating China on a level playing field. In the majority of cases, the U.S. investigates dumping by viewing the county’s data and determining whether an industry is being subsidized, or is paying fair market price for its labor, raw material, and facilities. With China, though, the U.S. investigators claim that China has a “nonmarket economy” and therefore automatically assume that China’s data is corrupt due to the controlled yuan, rigged markets, and subsidized loans. So instead of determining whether China is practicing dumping by viewing the data that actually has a chance of showing the production cost of products produced in China, the investigators get their data from different sources. In the case of furniture and color televisions, for example, investigators studied information form Indian in order to determine what the fair market value of the disputed products actually is. This method, though, does not take into account that India does not produce televisions and furniture to the same extent that China does. (Engardio and Roberts, Wielding A Heavy Weapon Against China 2004) In an economy of scale the quantity of any given product produced can greatly influence the cost of production. Since India does not produce the same quantity of televisions and furniture as China, one can not accurately use India’s information to establish whether or not China is partaking in dumping. Furthermore, since China’s economy is becoming more capitalistic virtually by the day, New Zealand, The EU, and the Philippines have already removed China from their list of “nonmarket economies.” (people.com 2000) Perhaps the U.S. Investigators should follow the example of other nations and seriously reconsider labeling China’s economy as “nonmarket.”
China, in light of the many accusations against the country, has become defensive of its own economic practices. For example, China, in response to claims that it has dumped steel into foreign markets has insisted that there has been no dumping. Luo Bingsheng, vice-chairman of China Iron and Steel Association (CISA), on February 2nd argued that "The price of steel from China is the same as the international price. If overseas steel enterprises take steps to introduce anti-dumping measures against the Chinese steel industry, we will respond swiftly." (China does not dump steel at low prices 2007) Although it is not expressly stated, one can assume that Luo Bingsheng is insinuating that China intends to impose its own tariffs on goods imported into China.
China has, in fact, already made claims that other countries have been dumping into China’s own domestic market. For example, China's Commerce Ministry has made claims against Corning Inc., an exporter of fiber-optic cables, and assessed a 16% penalty on its sales. (Engardio, Dumping: China Strikes Back 2004) The Chinese government has also, in response to complaints made by five Chinese manufactures, investigated dumping of polyvinyl chloride (PVC), a plastic commonly used for water pipes, imported form the United States and Japan. (Kyodo News International, Inc. 2002) All-in-all, according to a Chinese newspaper, by March 2002 China had already made 17 anti-dumping charges, 6 of which had been won. (people.com 2002) One can expect, in the light of China’s widening economic power, that anti-dumping charges assessed on other countries by China will do nothing but increase. China has shown, and will undoubtedly continue to show, that it has just as much of a right to protect its producers as does any other industrialized nation.
As the rest of the industrialized nations become ever more protectionist with respect to their producers, one can only conclude that China has no choice but to act in a like manner. Instead of basing economic policy on sound economic principals, political leaders are going to base policy on a tit-for-tat mentality that will inevitably be of no benefit to either player. As the United States accuses China of dumping, China will in response accuse the United States of dumping. Although these policies my benefit a limited amount of domestic producers, they end up costing the consumer. Industrialized nations should spend less resources protecting industries of which they lack a comparative advantage, and more resource on industries of which they have already proven competitive. This way, the consumer could benefit while the competitive producer excels.
Bodeen, Christopher. Chinese legislature passes landmark laws (for private businesses and property, revised a tax law). March 15, 2007. http://www.freerepublic.com/focus/f-news/1801695/posts (accessed March 25, 2007).
Cable, Vincent, and Peter Ferdinand. "China As an Economic Giant: Threat or Opportunity?" International Affairs (Royal Institute of International Affairs 1944-) 70, no. 2 (April 1994): 243-261.
China does not dump steel at low prices. February 2, 2007. http://en.ce.cn/Industries/Basic-industries/200702/08/t20070208_10362806.shtml (accessed March 24, 2007).
Engardio, Pete. Dumping: China Strikes Back. July 5, 2004. http://www.businessweek.com/magazine/content/04_27/b3890088.htm (accessed March 26, 2007).
Engardio, Pete, and Dexter Roberts. Wielding A Heavy Weapon Against China. June 21, 2004. http://www.businessweek.com/magazine/content/04_25/b3888064.htm (accessed March 25, 2007).
Krugman, Paul R., and Maurice Obstfeld. International Economics Theory & Policy. Seventh. Boston: Pearson Addison Wesly, 2006.
Kyodo News International, Inc. China begins dumping probe into PVC. April 1, 2002. http://www.findarticles.com/p/articles/mi_m0WDP/is_2002_April_1/ai_84531654 (accessed March 26, 2007).
Odessey, Bruce. Dumping Cases on China Imports Rise Since WTO Accession. March 9, 2005. http://usinfo.state.gov/ei/Archive/2005/Mar/10-388477.html (accessed March 24, 2007).
people.com. China won 37.5% anti-dumping cases with no-tariff or no-loss ends. March 29, 2002. http://english.people.com.cn/200203/29/eng20020329_93087.shtml (accessed March 24, 2007).
—. Economic Perspective: Dumping Charges Block China's Exports. August 21, 2000. http://english.people.com.cn/english/200008/21/eng20000821_48641.html (accessed March 24, 2007).
© All words and music written and owned by Shawn Nelsen.