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Tuesday, September 21, 2010

A New Marketing Campaign for Import Protection

A colleague, Bruce Blonigen, reacts to new measures "'focused on illegal import practices from non-market economies," and he explains why these new measures will harm US export competitiveness:

A New Marketing Campaign for Import Protection, by Bruce Blonigen: In a recent late August press announcement, U.S. Commerce Secretary Gary Locke announced “proposed measures – especially focused on illegal import practices from non-market economies - that will strengthen trade enforcement and help keep U.S companies competitive. These steps support President Obama’s National Export Initiative (NEI), which aims to double exports in the next five years and support the creation of several million new jobs.” (The link to the full announcement is here).
The press announcement ultimately details 14 proposed measures to “tighten” the U.S.’s enforcement of antidumping (AD) and countervailing duty (CVD) trade protection programs, which apply import duties on products where foreign firms are pricing their products “unfairly” low or foreign governments are subsidizing exports to the U.S.  Among other things, these measures will lead to investigation of more small foreign exporters, alter the methods by which Commerce calculates the size of the duties (presumably to apply larger AD and CVD duties), and “tightening the deadlines for submitting new factual information in AD/CVD cases.”  God forbid that facts get in the way of these investigations!
As sad and petty as these new policies are, the scary part is how bold Commerce is to package these old-style import protection policies into the National Export Initiative to increase exports.  Let me briefly describe three ways in which these polices will unequivocally HARM U.S. export competitiveness. 
First, any general equilibrium trade model will show that limiting imports will also limit exports.  With the large trade imbalances we currently have, this point has less relevance for our current situation, but it is a warning about the long-run consequences of import protection and its connection to export competitiveness.
Second, and much more compelling for our current situation, is the real possibility of retaliation.  Work by myself and Chad Bown (see here), as well as other leading AD scholars (see here and here) have found significant patterns of retaliation in worldwide patterns of AD investigations.  So my advice to U.S. exporters is to get ready for much greater scrutiny and impediments in your foreign destinations in wake of these new Commerce AD/CVD policies. 
Third, most U.S. AD/CVD import investigations are on products that are essential inputs to a large segment of U.S. manufacturing industries, particularly steel and chemical products.  Greater import protection raises input prices for these downstream U.S. manufacturing industries, many of which are our engines of export growth.  Higher input prices lead to higher output prices and a loss of export competitiveness on the world stage for our U.S. manufacturing companies.
Of course, one hope is that these types of activities to “fine-tune” current AD/CVD policies will have minimal impact.  In prior work, however, I found that discretionary changes in methodology by Commerce were the major contributor of AD duties rising from an average of 15% in 1980 to an average of over 60% by 2000.  Hopes crushed!  It is clear that these new policies certainly have China in mind, with quite a few changes in methodology for non-market economies, a classification that often applies to Chinese firms subject to U.S. AD/CVD investigations.  However, many of these policies will clearly affect all import sources as well.
After the world recession took hold in 2009, many observers expected major back-sliding on trade liberalization, and they were relieved that the leading countries of the world did not resort to these tactics.  These recent policy changes by the U.S. should worry all of us that this may be changing.  No official statistics will reflect this, but with this announcement, the restrictiveness of U.S. trade policy just got measurably stricter.  Other countries will certainly take notice, and so the likelihood that other countries follow suit, especially in this period of economic uncertainty, is fairly high.  As a leader of the world economy, this is a dangerous precedent for the U.S. to set.

    Posted by on Tuesday, September 21, 2010 at 11:07 AM in Economics, International Trade | Permalink  Comments (32)


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