ZappChai Explainers - Anti Dumping Duties

Every country works in some way or the other to promote the welfare of its own industry. In an increasingly globalized world, this sometimes means protecting its industry against malpractices by global competition as well.

One such measure is an anti-dumping duty - the charge the country levies on goods it believes are being priced at lower than the fair value - i.e. goods that another country is dumping in its country so that the products made by the local industry continue to stay competitive.

In today's ZappChai explainer, we understand what the anti-dumping duty is, look at recent examples where are being discussed, and consider the balance the country needs to strike in imposing this.

Dumping and why it exists

Firms and governments alike are driven by a certain set of objectives. At times these objectives are both positive and coherent, like creating great products to generate value for the customer and profit for the shareholder. But there are times where these objectives can either get misaligned or be driven by malicious interests. Like when governments use their firms to flood the other countries market to put players in that market out of business, or when business leaders are incentivized based purely on volumes instead of profitability, and hence move towards growing the same.

The consequence of these actions is that the counterparty is often flooded with cheap materials for a period of time. This seems good on the face of it, after all, who doesn't like cheap stuff. But what this can end up doing is putting good businesses doing business the right way out of business, leaving space for the global competitor to not only gain share but also boost prices once the competition is significantly weakened. This is exactly the kind of behaviour anti-competitive behaviour tries to guard against.

What have been India's more recent moves in the anti-dumping zone

It has been a busy few weeks for India's anti-dumping duties, with duties and restrictions being considered for a wide variety of products. Tyres were one of the major good where import restrictions were imposed, marking relief for domestic tyre players working in an inherently weak market. It has also fast-tracked the anti-dumping investigations on 100+ products as it continues to treat China as a "non-market economy".

The list of goods under consideration are largely commodities and raw materials, including carbon black, steel, petrochemical derivatives and more. Local producers of these items have been reacting well to the news, whereas industries that depend on these for their products and have limited pricing power aren't as pleased.

The balance to be struck?

But what is the balance you speak of?! Well, why the anti-dumping duties are great news for local producers of these items, it may not always be ideal for everyone. Carbon black for eg, is a key raw material in making rubber tyres, and China produces ~43% of it! A restriction in imports for this will mean costlier raw materials for the maker of tyres in India. The increase in cost will either have to be borne by the firm via reduced margins, or be passed on to the end consumer who will have to pay a higher price. The price of not allowing local firms to survive however could be a lot higher in the long run!

If the economics of it wasn't complicated enough, it is further complicated by political motives often deeply entangled in these processes which would lead to decisions that might not be ideal. In light of the recent tensions with China, it would be interesting to see how this tool is used both for economic and diplomatic purposes.

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