Antidumping as Protectionism
In the United States and a number of other countries, dumping is regarded as an unfair competitive practice. U.S. firms that claim to have been injured by foreign firms that dump their products in the domestic market at low prices can appeal, through a quasi-judicial procedure, to the Commerce Department for relief. If their complaint is ruled valid, an “antidumping duty” is imposed, equal to the calculated difference between the actual and the “fair” price of imports. In practice, the Commerce Department accepts the great majority of complaints by U.S. firms about unfair foreign pricing. The determination that this unfair pricing has actually caused injury, however, is in the hands of a different agency, the International Trade Commission, which rejects about half of its cases.
Economists have never been very happy with the idea of singling out dumping as a prohibited practice. For one thing, setting different prices for different customers is a perfectly legitimate business strategy—like the discounts that airlines offer to students, senior citizens, and travelers who are willing to stay over a weekend. Also, the legal definition of dumping deviates substantially from the economic definition. Since it is often difficult to prove that foreign firms charge higher prices to domestic than to export customers, the United States and other nations instead often try to calculate a supposedly fair price based on estimates of foreign production costs. This “fair price” rule can interfere with perfectly normal business practices: A firm may well be willing to sell a product for a loss while it is lowering its costs through experience or breaking into a new market. Even absent such dynamic considerations, our model highlighted how monopolistically competitive firms have an incentive to lower their markups in export markets due to competition effects associated with trade costs.
In spite of almost universally negative assessments from economists, however, formal complaints about dumping have been filed with growing frequency since about 1970. In the early 1990s, the bulk of anti-dumping complaints were directed at developed countries. But since 1995, developing countries have accounted for the majority of anti-dumping complaints. And among those countries, China has attracted a particularly large number of complaints.
There are two main reasons behind this trend. First and foremost has been China’s massive export growth. No firm enjoys facing stiff increases in competition, and anti-dumping laws allow firms to insulate themselves from this competition by raising their competitors’ costs. Second, proving unfair pricing by a Chinese firm is relatively easier than for exporters from other countries. Most developed countries (including the United States) facing this surge in Chinese exports have labeled China a “non-market” economy. A BusinessWeek story describes the difference that this description makes when a U.S. firm files an anti-dumping complaint against a Chinese exporter: “That means the U.S. can simply ignore Chinese data on costs on the assumption they are distorted by subsidized loans, rigged markets, and the controlled yuan. Instead, the government uses data from other developing nations regarded as market economies. In the TV and furniture cases, the U.S. used India—even though it is not a big exporter of these goods. Since India’s production costs were higher, China was ruled guilty of dumping.”22
As the quote suggests, China has been subject to antidumping duties on TVs and furniture, along with a number of other products including crepe paper, hand trucks, shrimp, ironing tables, plastic shopping bags, steel fence posts, iron pipe fittings, saccharin, and most recently solar panels. These duties are high: as high as 78 percent on color TVs and 330 percent on saccharin.