Question

You firm is a paper converter. It converts paperboard into various articles for use in homes and restaurants for food preparation,sale,and storage. Its products include pizza boxes, ice cream boxes, baker and deli boxes, and paper plates as well as boxes and trays for use in fast food operations. You purchase paperboard from both domestic and foreign sources. Recently, a Taiwan supplier has begun offering paperboard at extremely low prices- far lower than what you have been paying domestically. One of your colleagues at your firm calls the offer “too good to be true.” You have always had reliable sources of supply, but the offer is very tempting. Please answer and expand on the following questions:

ask:1. If it turns out the products are being “ dumped” in the U.S market, what would be the result and how might it affect your firm and your purchasing decision?

Answer 1

The existence of price discrimination between domestic and export markets generally indicates the presence of a market distortion in the home market, such as import barriers, a monopoly or cartel, or some combination of these factors that gives domestic producers the ability to maintain domestic prices at a level higher than export prices. Under such circumstances, dumping is a mechanism through which competitive outcomes are determined.

In the short run, dumping enables protected firms to run their facilities at higher utilization rates than would be economically feasible in an open market, giving them a major cost advantage unrelated to their comparative cost competitiveness. Over the long run, dumping can deter investment in the market where it is occurring and, conversely, may well foster increased investment in the protected market. Over time, through such dynamics, dumping may permit an initially less efficient industry to displace an equally or efficient competitor, that is, not benefiting from a protected home market.

Friction arising out of dumping can become particularly acute when dumping injures or destroys industries regarded as vital to national economic well-being and national security, a phenomenon which has been observable at a number of points in this century.