10 August 2005

Antidumping law: protecting special interests

The current issue of Foreign Affairs has an excellent article debunking the idea that America's antidumping policies are good for America. The essay, Antidumping: The Third Rail of Trade Policy, is written by N. Gregory Mankiw and Phillip L. Swagel. They say that antidumping law has become just a way for vested interests to protect themselves at the expense of American consumers (especially harming the poorest Americans) and at the expensive of companies that benefit from cheap inputs.

The authors point out that antidumping law's use in practice is very different from its purpose. It was introduced to act "when a foreign company uses temporary low prices to drive its competitors out of the market and then raises prices, a practice known as 'predatory pricing'." The idea was that consumers lose out in the long run because foreign producers are able to raises prices having put the competition out of practice. But even that might be a weak reason for the an antidumping law. As the authors point out: "On the other hand, if the price war lasts long enough or if the would-be predator is unable to raise prices in the end because of the entrance of new competitors, consumers are net winners. The possibility of new firms entering a market is thus a crucial constrain on anticompetitive behavior."

Moreover, predatory pricing isn't what the law is used for: "the American companies who petition for antidumping tariffs... use them to thwart foreign competition. In essence, 'antidumping' means little more than 'antibargain'."

The biggest user of antidumping procedures is the steel industry: "nearly half of antidumping tariffs imposed since 1970 have been on steel imports, and 158 of the 294 antidumping orders in force as of April 2005 were on steel products." The result, according to one study, is that for each job saved by steel tariffs, three jobs are lost in steel-using industries.

Sometimes antidumping rows are resolved by "suspension agreements" where foreign companies agree to minimum prices for their exports. But the authors point out: "It is no small irony that the [US] Department of Commerce sets prices in this fashion for steel plates imported into the United States from the former Soviet Union."

Originally published on the Globalization Institute Blog byAlex Singleton

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