Commentary

There Is No ‘Merit’ to Trade Remedy Actions

The so-called trade remedies — antidumping duties, countervailing duties, and safeguards — have always caused trade friction and been fairly controversial. Recently, though, there has been some new conflict in this area: in several instances, the United States and European Union have begun investigations or imposed new duties on products from China, and in direct response, China has taken similar actions against unrelated U.S. and EU products. U.S. and EU officials have taken great offense at this tit-for-tat behavior, and accused China of bad faith.

The latest example involves trade in wine, a product well known as one that is a symbol of national pride for some countries. After the EU decided to impose duties on Chinese solar panels, China responded by announcing an investigation into the dumping and subsidization of European wine. Not surprisingly, the French were particularly unhappy about this:

At its core, a trade remedy action is simply a request for protection.”

“We’re taking this very seriously,” said a French trade ministry official. “The way this was presented seems to us inappropriate and reprehensible, namely the fact that the case is not treated on its own merit but because a decision was taken in another area.”

The focus of this statement is interesting. According to the official, the “presentation” of the Chinese action is “inappropriate and reprehensible,” because the case is not based on “merit.” The view here seems to be that trade remedy actions should only arise naturally in response to concerns of the domestic industry regarding “unfairly” traded imports. They should not be used as a trade policy response. The latter, it is suggested, cannot have “merit.”

While the French concern with new trade barriers they may face on wine exports is understandable, the view expressed here imputes an objectivity to trade remedy actions that simply does not exist. There is, in fact, no “merit” to trade remedy actions. For the most part, they are not designed in a way that uncovers bad behavior by foreign companies. Rather, they simply offer up protectionism when certain conditions have been met.

This is particularly true in the case of “dumping” (low-priced imports), which most economists would say is not even problematic in theory. And the way the rules are actually applied in domestic anti-dumping law is so broad as to be absurd (dumping can be found to exist whenever a product is merely sold for a lower price in one market than in another market). Rather than being objective and meritorious, anti-dumping tariffs are based on arbitrary calculations and propose harmful solutions (more tariffs) to situations that need not be remedied.

Subsidies are a bit more complicated, as they may represent government attempts to favor domestic industry over foreign competitors. But even if a remedy is needed here, multilateral rules offer a better solution than unilateral tariffs.

In policy terms, China’s trade remedy responses to the U.S. and EU trade remedies are no better than the initial U.S./EU actions. The Chinese actions will make Chinese consumers worse off, just like the U.S./EU actions will make their consumers worse off.

And in terms of “merit” as well, they are also not very different. In all of these cases, a mostly arbitrary set of calculations determines whether imports should be punished with higher tariffs. The reasons why the process was started do not affect the “merit” of the case. There is no “merit” here. At its core, a trade remedy action is simply a request for protection. Whether that request arose organically from domestic industry demands, or developed as a response to foreign trade remedy actions, does not change the negative impact on consumers or the friction it brings to the world trading system.

As long as trade remedy laws are in place, they are available for use by domestic industries who want to keep their foreign competitors out. Searching for “merit” in any of this will lead to disappointment, which is exactly what Chinese wine consumers and European purchasers of solar panels will feel when they see the higher prices they will have to pay.