This might be more of a GQ than a GD, but most likely will become a debate, so here it is.
In a ruling today, the US Commerce Department ruled that China and Vietnam have been dumping shrimp on the American market.
How, if at all, does this differ from the “dumping” of cheap labor in the IT market, most noticeably by India and China? Can’t the same arguments be made? Shouldn’t the US consumer have access to less expensive shrimp if the Chinese and Vietnamese (and possibly other countries, more rulings to come later) can “produce” it more cheaply? Sure, it’s hurting the American shrimping industry, but inexpensive foreign IT firms are hurting the IT workers, and it’s seen as overall good for the end consumer.
One can delete “IT” and add “Manufacturing” and have the same question.
I believe “dumping” in terms of unfair trade practices, means products that are government subsidized so that the they can be sold below prevailing market price, as in the case of shrimp. I don’t think any Asian labor is being subsidized by the government to make it cheaper, so that comparison isn’t really valid.
I’m guessing that there is a powerful lobby somewhere - after all, it’s not as if the practise of flooding a foreign country with cheap surplus products is at all uncommon - the US itself has been labeled as “one of the world’s largest sources of dumped agricultural commodities”.
Just because it’s cheaper doesn’t mean it’s dumping.
Dumping has a specific definition - when an imported commodity is being sold at a price that’s lower than what it is sold at in the home country in order to artificially undercut domestic producers.
If the US shrimp market has settled on $5.99 a pound, then foreign shrimp producers cannot sell at $3.99 a pound, unless that is the going rate in their home country. In other words, if China’s shrimp industry is selling shrimp in the US at $3.99 a pound to undercut the domestic price of $5.99 a pound, they can’t make up the difference by selling shrimp in China at $7.99 a pound. If the Chinese industry is genuinely producing them more cheaply and selling shrimp here at $3.99 a pound and also selling shrimp in China for $3.99 a pound, then them’s the breaks for the US domestic industry and they get no dumping protection.
As far as I know, tech consultants in India are not being paid artificially low wages compared to what domestic Indian firms pay for the purpose of undercutting the US domestic labor market.
I think you’re misunderstanding what “dumping” is. Dumping is not a synonym for “competitive advantage.” Dumping is charging importing countries a lower rate for goods than what those goods would sell for in the home market.
For example, if a widget sells for $1 in China, but $5 in the US, Chinese companies selling widgets in America for $1 have a competitive advantage. If they sell them for 50 cents in America, they are dumping in order to drive US widgetmakers out of business.
So far as I have heard, the attractiveness of outsourcing labor has to do with the lower prevailing wages in other countries, not special deals that reduce labor costs below the prevailing wage for US companies willing to move offshore.
Interesting, consider me enlightened. A little difficult to conceive that the Chinese are selling shrimp for more in China than in the USA. Although, if this does happen could it not be the result of monopolistic practices in China versus “dumping”?
So, if India were to charge a lower labor rate for a project in the USA than a similar project in India, then the Commerce Department would (possibly) take action against India? Or does this only work for tangible goods?
I’ve been looking but can’t find any cite in the related new articles to support that the price of shrimp in China or Vietnam is actually lower than in the United States. Can anybody provide a cite or at least anecdotal information about the price of shrimp in China or Vietnam?
Excellent question. The short simple answer is that yes, WTO rules cover both goods and services.
Unfortunately, it’s not that short or that simple. Even for goods, there are definitional differences that make a dumping determination difficult (in the shrimp dispute, China and Vietnam are claiming that the US is comparing unshelled shrimp to a basket (heh) of value-added shrimp in local markets and that the US is imputing an unrealistically high value to fishing rights).
You can see how it becomes even more difficult in services. Is a company just coding, or coding and auditing? Is it complex code or simple code? Is recruiting English-speaking personnel a “cost” that justifies higher wages or are there enough English-speakers that a premium isn’t justifed? So in most instances I think it’s highly unlikely that you’ll see trade cases for services. I’ll see if I can think up any prior ones.
Another excellent question. Shrimp are cheaper in China and Vietnam than they are here. However, they are not market economies. Commerce has a process for determining the fair value of a product in a non-market economy. In this instance, they ended up using India as a surrogate country and only using the price of shrimp for export, as shrimp for internal consumption in both India and the trade-case countries is of poor quality.
Thanks, Manhattan, I didn’t think the shrimp thing was probably as simple as USA cost = $5.99/lb for 20-24 count headless and China = $6.99/lb for 20-24 count headless. Sadly, none of the journalists seems to dig into this kind of detail. Maybe the WSJ or the Economist?
As for labor, particularly IT labor, I’d see too many variables to make it an apples to apples comparison.
As a followup, how does the US DoC interact with the WTO? Is the WTO like an arbitrator of international grievances, or are they more like a super referee? And what gives them “teeth”?
I’d be surprised if the Economist doesn’t give a good look at this, but their articles often assume prior knowledge on older treaties like GATT or NAFTA. My definition of dumping was pretty simplified, there are all sorts of exceptions in determining dumping - large subsidies can still result in dumping, even if the home and export prices are the same, etc.
The WTO acts as an arbiter of grievances. For instance, if the US slaps some tariffs on UK marmalade, the UK can take its complaint to the WTO and the WTO will determine the level of retaliatory tariffs that the UK can place on US goods, if any.