A recent episode of NBC’s The West Wing featured a trade dispute over allegedly “dumped” Japanese steel. President Josiah Bartlett (Martin Sheen) blamed Japan for trying to export its way out of economic hardship by dumping steel on American shores, threatening U.S. workers. But, he also lamented that responding with restrictions on steel imports would cost Americans $800,000 for every job saved.
The issue of Japanese steel dumping is almost a cliché. But it’s also timely. Beyond TV-land, there was last month’s ruling by the World Trade Organization against parts of the U.S. antidumping law in a case involving Japanese steel. President Bartlett’s quandary captures the dilemma facing U.S. policymakers: protectionism is simultaneously politically expedient and economically irrational.
Legally, dumping is defined as the selling of a foreign product in the U.S. market at a price lower than “fair value,” which can be defined in a variety of ways. If there is dumping, a duty (tax) equal to the difference between these figures is slapped on top of the U.S. price, effectively raising the cost to U.S. consumers.
Defenders of antidumping laws, which include domestic producers in a few industries (mainly steel) and their representatives, claim that such laws are needed to combat predatory practices of foreign companies. Without such laws, they claim, U.S. firms would be forced to compete with “unfairly” low prices made possible by higher prices in a protected home market.
Antidumping defenders say that the laws ultimately protect consumers, who would otherwise be forced to pay high monopoly prices once U.S. firms are driven out of business and the foreign companies raise their prices in the absence of competition. These claims are dubious.
For this strategy to work, a foreign firm must ensure that its home market is protected enough to obtain higher prices and build up a suitable “war chest.” Then it needs to make a hefty amount of low-priced sales in the United States until its competitors are driven from the market. Finally, once it has achieved market dominance and raised prices in the United States, the foreign firm must ensure that other foreign companies and new U.S. companies do not enter the market.
This scenario is so unlikely that it hardly justifies a law to combat it. But to imply that this predatory behavior is even measured is misleading. As currently administered, U.S. antidumping law is not able to identify “unfair” behavior. Nor does it try to distinguish such behavior from legitimate, competitive pricing strategies. It is the U.S. firms that file antidumping petitions that fulfill the first requirement of predatory behavior: They seek to protect their domestic market.
This anticompetitive behavior is the real threat. Dumping of foreign product does not hurt U.S. consumers; rather, antidumping laws do.
The United States has more antidumping orders in place against more products from more countries than any other country in the world. The foreign products subjected to these extra duties, if entry into the U.S. market is not closed completely, are scarcer and more expensive than they should be. Their absence provides the leverage for domestic producers to jack up their prices.
This dynamic has made it difficult for U.S. producers that rely on imports for processing to compete around the world and in the United States itself, where foreign competitors that have access to the same materials at world market prices can sell their final products more competitively.
Antidumping laws are a form of backdoor protectionism that has been abused by certain U.S. companies with the support of the Commerce Department. This behavior is costly to import-using industries and consumers, and is agitating U.S. trade partners whose markets are sought by U.S. business. The WTO’s ruling on the Japanese steel case is not unique. It is one in a string of similar rebukes to overzealous administration of U.S. trade laws.
Congress and the administration are now compelled to revise some laws and regulations. Failure to comply and a continued reliance on protectionism to quell legitimate competition undermines the goal of a new WTO round of trade liberalization, which stands to benefit millions of consumers and producers.
America’s trading partners are fed up with the use of arbitrary, unfair and anticompetitive measures to keep their products at bay. American consumers, and not just the fictional ones in President Bartlett’s thoughts, should feel the same way.