The Ravages of Antidumping (in a 3.5 Minute Video)
Earlier this year, the Cato Institute published a study of mine titled “Economic Self-Flagellation: How U.S. Antidumping Policy Subverts the National Export Initiative.” The thrust of the paper is that most U.S. antidumping measures restrict and tax the importation of crucial raw materials and intermediate goods used by U.S. producers to make their own final goods. Accordingly, these antidumping measures—imposed for the benefit of one or two or a few firms in less competitive upstream industries—raise the costs of production for downstream U.S. producers and undermine their ability to compete at home and abroad.
The paper contains many statistics and details, and makes a very practical case for antidumping reform. But if you want just the highlights and would prefer to absorb them through a more passive medium, my Cato colleagues Caleb Brown and Austin Bragg have produced an excellent, 3-and-a-half-minute video, which gets straight to the point:
On the other hand, if you can’t get enough original research on U.S. antidumping policy, please visit our growing online library of antidumping resources (most, but not all, of the content there pertains to antidumping policy).
Antidumping Reform Crucial to U.S. Competitiveness
The Cato Institute today published its 13th policy paper on the topic of antidumping. “Economic Self-Flagellation: How U.S. Antidumping Policy Subverts the National Export Initiative” describes with compelling anecdotes and data how the outdated assumptions of a 90-year-old law—one purported to “level the playing field” and protect U.S. companies from “unfair” foreign competition—conspire with its overzealous application to erode the competitiveness of U.S. firms.
During the decade from January 2000 through December 2009, the U.S. government imposed 164 antidumping measures on a variety of products from dozens of countries. A total of 130 of those 164 measures restricted (and in most cases, still restrict) imports of intermediate goods and raw materials used by downstream U.S. producers in the production of their final products. Those restrictions raise the costs of production for the downstream firms, weakening their capacity to compete with foreign producers in the United States and abroad.
In all of those cases, trade-restricting antidumping measures were imposed without any of the downstream companies first having been afforded opportunities to demonstrate the likely adverse impact on their own business operations. This is by design. The antidumping statute forbids the administering authorities from considering the impact of prospective duties on consuming industries—or on the economy more broadly—when weighing whether or not to impose duties.
That asymmetry has always been insane, but given the emergence and proliferation of transnational production and supply chains and cross-border investment (i.e., globalization)—evidenced by the fact that 55% of all U.S. import value consists of raw materials, intermediate goods, and capital equipment (the purchases of U.S. producers)—it is now nothing short of self-flagellation.
Most of those import-consuming, downstream producers—those domestic victims of the U.S. antidumping law—are also struggling U.S. exporters. In fact those downstream companies are much more likely to export and create new jobs than are the firms that turn to the antidumping law to restrict trade. Antidumping duties on magnesium, polyvinyl chloride, and hot-rolled steel, for example, may please upstream, petitioning domestic producers, who can subsequently raise their prices and reap greater profits. But those same “protective” duties are extremely costly to U.S. producers of auto parts, paint, and appliances, who require those inputs for their own manufacturing processes.
President Obama acknowledges as much. On August 11, 2010, at a White House signing ceremony, the president offered the following rationale for a bill that he was about to sign into law:
The Manufacturing Enhancement Act of 2010 will create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery. And here’s how it works. To make their products, manufacturers—some of whom are represented here today—often have to import certain materials from other countries and pay tariffs on those materials. This legislation will reduce or eliminate some of those tariffs, which will significantly lower costs for American companies across the manufacturing landscape—from cars to chemicals; medical devices to sporting goods. And that will boost output, support good jobs here at home, and lower prices for American consumers.
Higher input prices stemming from antidumping measures are only the first assault on these downstream firms. The next wave usually takes the form of stiffer competition from firms in countries where there are no antidumping duties on the critical input. As a result, the foreign competition often operates at a cost advantage in the United States and in other markets that enables it to sell profitably at lower prices than U.S. firms can charge.
Mexican Retaliation for U.S. Truck Ban is Proper
The Mexican government announced yesterday that it will expand the list of U.S. products subject to punitive import duties in retaliation for a brazen, 15-year-long refusal of the United States to honor its NAFTA commitment to allow Mexican long-haul trucks to compete in the U.S. market. Given continued U.S. intransigence on the issue, Mexico’s decision is understandable, if not laudable.
The dispute is not very complicated. Under the terms of the deal, Mexican trucks were to have been able to compete in U.S. border states by 1995, and throughout the United States by 2000. But President Clinton, at the behest of the Teamsters union, suspended implementation of the trucking provision on the grounds that Mexican trucks weren’t safe enough for U.S. highways.
By 1998, the Mexicans had had enough, and brought a formal complaint under the NAFTA dispute settlement system, and in 2001, prevailed with a unanimous panel decision that found the United States in violation of the agreement, and ruled that Mexican trucks meeting U.S. safety standards had to be given access to the U.S. market.
In response to the NAFTA decision, Congress stipulated 22 safety requirements that Mexican trucks had to satisfy in order to gain access to the U.S. market. But before the U.S. Department of Transportation could grant any permits to Mexican truckers, in 2002, environmental and labor groups filed a lawsuit to block implementation on the grounds that the regulations violated U.S. environmental law.
In 2004, the U.S. Supreme Court unanimously struck down the truck ban, and soon after a government pilot program was developed to allow a limited number of Mexican trucks to serve the U.S. market. But funding for the pilot program was cut off by a Teamsters-friendly Congress in 2008, which effectively put the U.S. market off limits to Mexican trucks once again—and the United States squarely in violation of its NAFTA obligations, again.
In August 2009, after it became apparent that the administration and Congress preferred the economic cost of the trucking ban to the political cost of crossing the Teamsters, the Mexican government tried to change the equation by imposing $2.4 billion in retaliatory duties on about 90 U.S. products. A Mexican trucking association also filed a $6-billion lawsuit against the U.S. government.
But with no discernible progress toward resolution over the past year, the Mexican government announced yesterday that it will expand the list of U.S. products subject to punitive, retaliatory duties in an effort to convince Congress and the administration to finally live up to America’s word.
The Mexican government is right to retaliate—and to expand the list of products subject to punitive duties. Of course, retaliation hurts innocents, like U.S. businesses and workers, and Mexican businesses and consumers, who have nothing to do with the central dispute. And it increases the amount of red tape and the role of governments in international trade. But retaliation—when authorized by agreement and properly targeted—can also be an effective tool in promoting trade liberalization, reducing red tape, and diminishing the impositions of government.
It is by changing the political calculus that retaliation can be effective. Thus far, U.S. politicians have found the economic costs of the Mexican trucking ban and the retaliation to be tolerable (for themselves)—at least relative to the expected political costs from doing the right thing by ending the ban. By expanding the list to include other products, like oranges, the Mexicans hope to impress upon other U.S. interests, like the citrus industry in a very important swing state, that they have dogs in this fight as well.
Between the rising costs on the economic side of the equation and the diminishing political benefits on the other, support among politicians for the truck ban should dissipate.
The Obama administration’s failure to connect the dots is surprising. Its fealty to the Teamsters directly undermines the lofty goals of its National Export Initiative—which seeks to double U.S. exports in five years. On trade policy, the administration appears yet to fully grasp that the hip bone’s connected to the thigh bone, the thigh bone’s connected to the knee bone, the knee bone’s connected to the ankle bone, etc. When you restrict imports (in the immediate case, imports of Mexican trucking services), you restrict exports.
The rising economic and political costs of the truck ban suggest that something’s going to have to give soon. By amplifying the stakes, the Mexicans are right to hasten that day.
The Half-a-Loaf National Export Initiative
In his State of the Union address this year, President Obama announced a goal of doubling U.S. exports in five years. The “National Export Initiative” has since become the centerpiece of his administration’s trade policy, complete with its own Executive Order, organizational structure, and dedicated website.
Although I would be happy to see exports double in five years, I am skeptical of efforts to enshrine that goal as a national imperative. I worry that Five Year Plans and the setting of export targets puts the United States on the slippery slope to industrial policy, which is being touted nowadays with growing vim and vigor by columnists, politicians and other analysts who wish the United States were more like China.
But the economic straight jacket of industrial policy is not an imminent outcome of the NEI. And some of the reforms under consideration are sensible. For example, efforts to clarify, simplify, and streamline U.S. export control procedures are likely to reduce regulatory obstacles and spur meaningful export growth without imposing new burdens or diverting resources from elsewhere in the economy. Likewise, the administration’s discovery of the virtues of passing the long-pending bilateral trade agreements with South Korea, Colombia, and Panama could lead to the reduction or elimination of artificial barriers to U.S. exports in a variety of economic sectors.
But while we might rejoice in export-led economic growth, the National Export Initiative suffers from myopia, as it institutionalizes public misperceptions about how trade bestows its benefits on consumers and businesses. Just take a look at the program’s eight focus priorities:
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