Evan Soltas
Jul 30, 2012

Let There Be Dumping

JE-GH060616_30666  World Bank
Steel clothes hangers. Frozen shrimp. Plastic bags. Steel pipe. Citrate salts. Fresh garlic.

What do these things have in common? They are products which have come under investigation or duty by the U.S. International Trade Commission for alleged violation of antidumping statutes in the last week, according to the Customs and Border Protections database.

In past posts on this blog, I have been laudatory of the progress which has been made towards freer trade. I pointed out that average tariff rates have fallen from 25 percent in 1986 to 8.1 percent in 2010 across the globe and the U.S. continues to reduce tariff rates and the fraction of goods which are subject to tariff. (See here for the full discussion.)

Tariffs, however, are not the only barriers to trade; there exist a number of formal and informal methods to restrain international competition. And as The Economist described a month ago, such import restrictions have crept back up in the last few years. President Obama, as I pointed out here, has been an actively negative influence by encouraging legal action against "unfair trade practices."

One of the worst problems comes from antidumping restrictions. What happens, in short, is that domestic firms face stiff price competition from producers abroad, some of whom are heavily subsidized. They go to the International Trade Commission, complain that Producers X, Y, and Z in countries like Thailand, China, Taiwan, etc. are dumping their goods on the American market at below the cost of production. The ITC investigates and if it finds evidence of dumping, it can assess a countervailing tariff to establish what the petitioning firms see as an "equal playing field."

Large, headline-grabbing investigations are underway for solar photovoltaic cells and wind turbines. The turbines, in particular, will face duties between 21 and 73 percent of cost, as was reported in The New York Times a few days ago.

This is madness. Antidumping rules are backdoor protectionism. They hurt consumers and the vast number of producers, who depend on imports as inputs or who export to foreign markets which introduce retaliatory tariffs.

Greg Mankiw had an excellent article in Foreign Affairs a long time ago in which he concluded that such antidumping measures were the "third rail" of trade policy -- they sounded good, but in reality did tremendous damage in the aggregate to free trade. For even longer, economists have recognized that merely the threat of an antidumping tariff, such as the opening of an ITC inquiry, is enough to restrain competitive pressures.

The benefits of antidumping measures accrue to industrial firms and their legal partners, not to consumers, who must pay higher prices on products which could be more inexpensively produced elsewhere. If China wants to subsidize steel production, as is the underlying issue in many recent antidumping cases, let them do that. We shouldn't worry about the fate of the American steel producer. Furnaces don't have feelings.

You'd have to be blind, however, not to recognize that some workers are hurt by trade. They lose their jobs and significant earning potential if their skills are confined to a particular field which has lost its cost competitiveness. In this regard, there is a legitimate case for trade adjustment assistance, which would include aid for workers in industries displaced by international competition to retrain or open new firms in other industries. In the political realm, it may help the case of free trade to make it more nearly a Pareto improvement -- that is, everybody wins, not just in aggregate but individually -- and this is a dramatically more efficient solution than restricting trade.