The Chinese dump us.... !!! (!7th September 2007)

Dumping, we keep on hearing this quite often especially after the advent of the Chinese on the global manufacturing stage. The Chinese are not the first one to take to this kind of un-loading of the goods. Before the Chinese many others, especially Japan, have been accused of this. India also has been accused of dumping of shrimps by the US. What exactly is dumping, according to Wikipedia, a leading online encyclopedia, dumping is an act of exporting and selling of goods to a country at a price lower than the price of the same in ones own country. We can also call it to be “predatory pricing”, as many economists call it. So, what is so bad about it, we are getting goods at a cheaper price than we would other wise, this will lead to more savings and the benefits of the same thereof.

When will you sell some thing at a price lower than the price at which you sell it to your own people? There must be some reason for this act of philanthropy. It is not everyday that we get discounts. One of the reasons may be that the demand of that product has flagged in the domestic market and the excess has to be cleared and the losses covered up as much a possible. A very plausible cause, but if the demand for that product has declined in the domestic market, maybe it is the case in other markets too. A very possible thing to happen, if we have extra with us which cannot be sold in the domestic market as the market is saturated, we can sell it in limited numbers to customers in other countries. There is a possibility of people wanting to buy it, but not going for it maybe because they feel that the value for money and the requirement of the same is not that much, so if we make it available at a cheaper price maybe they will grab them up, in turn making the balance sheets of manufacturers look happier, and also get brownie points from their government for improving the trade balance of the county in their favor.

A reason for the same can be creation of a market in another country when the same has been developed in the domestic market. This early entry ensures a major share in a potential market giving obvious advantages. But then this cannot be called dumping in the real sense of the word. Another reason can be to overwhelm the domestic market with cheap goods so as to cripple the industry, and fracture the economy. A very innovative way to invest in the downfall of an economy and act innocent at the same time. More often than not this is the reason why all of a sudden a country becomes benevolent. In India, China is the main culprit, and damaging the local markets is the only notion. The Chinese have flooded Indian markets with cheap toys, electronics, items of daily utility, to industrial products. All this has had an effect on our industry, especially the toys sector. Now you can easily buy watches by Kg. in a Mumbai market, and get brand new bikes at fraction of the cost at which they are available in the country. The latest case in consideration is that of tires being dumped by the Chinese.

How and when can we say that we have become dumping grounds of any good, only when some one who is getting affected comes up and complains about it. Any country can not just arbitrarily blame any other country or its industry, but has to prove it that its own industry is getting affected by the exports of the other country. There is a long procedure that has to be followed in order to maintain a healthy trade relationship between the countries. Other wise this can be very easily used to hamper the exports of another country and damage its trade. Another way to curb international competition in this increasingly globalized/flat world. The method which is widely followed is to impose a high anti dumping duty/countervailing duty on the dumped products so that they are priced competitively and are sold on merit rather than pricing, this has an advantage of letting the local industry face global competition without letting it get damaged. Recently India imposed a duty of $135, raised from $95 on tyres imported from china.

All that we keep on hearing about dumping is its detrimental effects, but there are some positives as well which we have to find out. This dumping gives the consumer a sneak peek into what is available in the world market, how is it better than the ones that they use, and they getting to use the products which they did not use initially because of lack of availability or price. This increased level of aspiration of the customers then reflects on the manufacturers who start to manufacture goods of better quality, take up lean manufacturing methods, and use more effective means like six sigma and value engineering to cut costs. This has benefits for the customers and the industry alike. The customers get better products at more reasonable prices and the industry more customers. Dumping has helped many a industries to find new customer bases in the lower strata of the society without spending much on the development of the same. A good example will be the bikes market in the country. Lifan, a Chinese manufacturer of bikes started selling 100cc bikes for as low as Rs20000, much lower than the ones available in the country; this helped in tapping a market that was served by bicycles and mopeds. These people graduated to bikes. Ones a customer graduates to a product of a higher value, his aspiration levels are increased and he demands more of the products, luckily the dumped bikes cannot fulfill these for long and then the same customer looks up to models available in the country and helps the industry. Why the bike market is now reducing is a reason totally different, its more to do with the four wheeler market growth, and the second hand market amongst others. Another is the case of watches.

Government subsidies can also lead to products being deemed dumped onto other countries. As the production costs go down, manufacturers can get more profit for a lesser price and these subsidies can be used as a tool by governments to fare an economic war on other countries. Subsidies makes the products manufactured in the country cheap and the one manufactured in other countries seem overpriced by the consumer, who goes in for goods that are cheaper, and some times can also overlook quality if that is not a critical product like health care equipment. This hampers the growth of the industry which is importing to serve its needs, and as the demand for the imported product keeps on growing, the local industry suffers; the government exchequer suffers with increasing import bills. These subsidies have been a bone of contention for many developing countries at the various WTO meets. Many developed nations like the US and Europe pour in subsidies for their farmers bringing down the total cost to unattainable levels. Then the countries dependent on them for food supply suffer. Similar is the case with China, theirs is an export led manufacturing economy, the more they manufacture, the more they export and the more they grow, one of the reasons for the artificially high Yuan prices. So it is but obvious, with globalization being the mantra these days, that they will scavenge markets at the global level, and collapse the weak industries wherever possible. This helps them to find more markets and grow more. “Economic Colonization” we can call it.

Another way to look at it, from the point of view of the government providing subsidy, it is so as to protect a new industry, which is still to grow, or to get it out of a depression. In U.S. and Europe it is agriculture whereas in India it can be taken to be the IT and ITES industry. The Indian government has given tax sops to the IT/ITES industries which have brought down the costs of the goods and services to one of the lowest in the world. Can we deem it to be dumping of services? I think we can. Outsourcing has become one of the major industries and revenue earner in our country and a major issue in the developed nations for they say it has taken a toll on their employment levels. Once the tax sops will be lifted the cost of services will be comparable to the ones around the globe, blunting our competitive edge. If we advocate for the services sector of our country, then instead of crying over dumping we should take steps to take the bull by its horn, and let the tiger overwhelm the dragon.