The simple version: If a foreign government is unfairly subsidizing an industry, America will slap a tariff on it. This is good policy - imagine, for example, if Airbus could afford to sell their planes for $1, because they are being entirely subsidized by the French government. Everyone buys airbus, no one buys Boeing any more. Boeing(along with tens of thousands of jobs) goes bye bye, and now Airbus starts selling their planes for whatever they want, because there is no competition left.
So, that's what China was doing - they were giving this aluminum company tons of money, and it allowed them to produce and sell aluminum for far cheaper than should be possible. So America put a tariff on importing that aluminum from China.
Instead, they sent it to Mexico, and then pretended that the aluminum came there when shipping it into America. No more tariffs!
To play devil's advocate, can someone provide a single historical example of a case where dumping "worked," in the sense that one country's manufacturers were able to rake in large profits after their foreign competitors went out of business due to subsidies?
Because unless dumping actually succeeds at that goal, and I don't see any evidence that it does, it seems indistinguishable to American consumers from a huge technical advance in a foreign country lowering the cost of some import--yes, it may be detrimental to domestic producers, but it's a huge benefit to domestic consumers and a net benefit overall.
Greed by American companies outsource to low cost countries played a part too. The owners of the mines would rather buy and operate mines in low cost countries. It isn't simply the case that evil foreign government sets up a mine and dumps the raw material; often they allow the owners of existing mines in the West to buy concessions to operate them because then the country receives the expertise and a profit at the expense of the workers in the West. But, the Western owners of the Western mines make even more profit, at least in the short term.
Sometimes US firms go out of business when they compete with foreign firms. Even if that's because of "unfair" subsidies from foreign governments, that's indistinguishable from some foreign technological improvement that allows competitors to produce their goods more cheaply than US firms. I'm specifically asking for evidence of the followup: the part where foreign firms have no competition and rack up massive profits at our expense.
Note that this trick is very hard to pull off in the long-term. China tried it with rare-earth metals, and production just started up elsewhere. In the short term it's annoying and causes disruptions.
It isn't very hard to pull off dumping, it's game that's been played for centuries. That's why all modern governments disallow it. China especially does it all the time, here's an example with solar: http://www.nytimes.com/2014/12/17/business/energy-environmen... .
> the companies were selling products below the cost of manufacture and that the Chinese companies were benefiting from unfair subsidies from their government.
I assume Foxconn does not get subsidies to sell iPhones below cost :)
I just don't understand how easy it is to determine the cost of manufacture something outside of one's economy and infrastruture.
I'm in Argentina at the moment and I'm constantly hearing local businesses accusing china of dumping because they can't produce more cheaply, but than everywhere else in the world we buy Huawei, Xiaomi, etc I feel that accusations of dumping are more political interpretations than measurable facts.
I understand. But how do we know the real cost when the country we are talking about is China? Even in transparent economies like the EU, you find convoluted ways to subsidize companies (or convoluted ways to accuse companies of receiving subsidies - depending where you stand in these issues)
Because they aren't being convoluted about it, their costs and subsidies are very obvious. They are simply losing money and keeping the mills going via state guaranteed debt (well, the banks are being ordered to lend).
I think the rare earth mines that tried starting up again were promptly driven under by China. For example, Molycorp (which started up production at the Mountain Pass mine in the US) was driven into bankruptcy a year ago soon after reaching full production. Not a bad deal for China at all - they got an almost decade-long monopoly on manufacturing using rare earth metals, which they can probably continue now, and those that tried to break their monopoly suffered massive losses.
Wait, what about the part where everyone buys cheap Airbus planes and hedges them for when the price goes up? At some point, Airbus has to sell them for a profit, and it's at that point that people start selling their stockpiles of cheaply-bought Airbus planes. They could sell it for anywhere between $1 and whatever the price Airbus will eventually want to charge, and still make a profit, while simultaneously taking away all profit from Airbus.
And in the above scenario, Boeing is also someone that could buy those cheap Airbus planes. I know, it's a contrived scenario, but I think it illustrates the point.
In the case of aluminium being subsidized by the Chinese government, same thing. The entire world, including America, get's to benefit from cheap Aluminium. You could argue it's a relatively direct subsidy by the Chinese government to all Aluminium consumers. The Chinese government, and their subsidized aluminium producers will not be getting that money back. And really, all they're essentially buying is a temporary halt on competition. As soon as they monopolize the market, and attempt to abuse it, competitors will start appearing and they're back to square one. With a large capital deficit and negligible profits from the exercise.
Alternatively, you get protectionism via tariffs. One could argue that that is a form of punishment on all the consumers of the tariff-ed good, or consumers of goods that are made from the tariff-ed material. The consumers pay more, and the government get's extra tax revenue. Does it buffer, and protect local industries from turbulent and cheap foreign markets? Sure, but that's at the cost of the consumers again. Really, the only winner is the state's coffer.
You are ignoring costs, expertise, and time it takes to get production ramped up.
Let's say Chinese aluminum makers control the market and puts all other aluminum ventures out of business, and then raises the price until they don't need a subsidy and make a healthy profit.
Ok, so now someone else can jump in the aluminum game. Why would they do that if they knew that China could immediately put them out of business by turning the subsidy back on. Who would invest their money in that venture?
So, that's what China was doing - they were giving this aluminum company tons of money, and it allowed them to produce and sell aluminum for far cheaper than should be possible. So America put a tariff on importing that aluminum from China.
Instead, they sent it to Mexico, and then pretended that the aluminum came there when shipping it into America. No more tariffs!