Chapter 11
Chapters 8 through 10 focused on government policies toward imports, with little attention to government policies and business practices in the exporting countries. This chapter shifts to looking at various practices and policies that can increase exports, as well as the effects of these export-promoting activities on importing countries. The chapter has two major purposes: Examine dumping—what it is, why it occurs, how it affects importing countries, and what government policies are used in importing countries.
Knowledge Points
Chapters 8 through 10 focused on government policies toward imports, with little attention to government policies and business practices in the exporting countries. This chapter shifts to looking at various practices and policies that can increase exports, as well as the effects of these export-promoting activities on importing countries.
Actual importing-country government policies toward dumping generally do not make these economically sensible distinctions. The policy usually investigates alleged dumping by looking at whether the export price is too low, by either standard, and looking at whether there is injury to domestic industry. If both are found, then the importing country imposes antidumping duties equal to the difference between the low export price and the “normal price” or “fair market value.” The policy does not look at the overall effect of alleged dumping on the national well-being of the importing country, because it does not examine the effects on domestic consumers, and it does not attempt to determine the reason for the dumping.
Chapters 8 through 10 focused on government policies toward imports, with little attention to government policies and business practices in the exporting countries. This chapter shifts to looking at various practices and policies that can increase exports, as well as the effects of these export-promoting activities on importing countries.
WTO rules generally prohibit export subsidies and permit importing countries to impose countervailing duties in response. We examine the peculiar economics of all of this, using the case in which the export subsidy lowers the price of exports, and the market is otherwise competitive. Because of the lower import price, the importing country gains well-being in the shift from free trade with no subsidy to free trade with the foreign export subsidy (and no countervailing duty).
WTO rules generally prohibit export subsidies and permit importing countries to impose countervailing duties in response. We examine the peculiar economics of all of this, using the case in which the export subsidy lowers the price of exports, and the market is otherwise competitive. Because of the lower import price, the importing country gains well-being in the shift from free trade with no subsidy to free trade with the foreign export subsidy (and no countervailing duty).
Cases
The economics of an export subsidy are rather different if the market is not perfectly competitive—a major insight of strategic trade policy. The text shows the example of competition between Boeing and Airbus for the world market for a new type of airplane. With no government support, it is possible that neither firm will enter the new market, because both will lose if both enter.
The economics of an export subsidy are rather different if the market is not perfectly competitive—a major insight of strategic trade policy. The text shows the example of competition between Boeing and Airbus for the world market for a new type of airplane. With no government support, it is possible that neither firm will enter the new market, because both will lose if both enter. But if one government offers a suitable subsidy, its firm will enter. If the other government does not offer support, then the other firm will not enter, and the first firm will earn high profits, bringing a benefit to its country and possibly to the entire world. But, if the other government also offers a subsidy, both firms produce. The world’s consumers gain, but each of the producing countries can end up with lower well-being because of its firm’s loss net of the government subsidy (the subsidy is a transf
Agriculture is Amazing: A high tariff or a zero quota can reduce imports of butter to zero. But, the high tariff or zero quota cannot turn butter into an EU export product, because production costs behind the import barrier will be too high to export successfully into foreign markets. Instead, the country will be at the no-trade national equilibrium, with a no-trade domestic price that is well above the world price.
Agriculture is Amazing: A high tariff or a zero quota can reduce imports of butter to zero. But, the high tariff or zero quota cannot turn butter into an EU export product, because production costs behind the import barrier will be too high to export successfully into foreign markets. Instead, the country will be at the no-trade national equilibrium, with a no-trade domestic price that is well above the world price. A price support in which the government purchases any production that is not sold to private buyers can turn butter into an EU export product. If the price support is set above the no-trade national equilibrium price, then there will be excess domestic supply at that price (domestic quantity supplied at the high support price is greater than domestic quantity demanded at that high price). The government then must decide what to do with the butter that it has purchased. It may
The United States would lose. The U.S. government pays a subsidy of $5 for each pair of blue jeans to Canada. The export price is lower, but the quantity exported is the same as with free trade. Canada would gain the $5 on each pair. The gain would be collected as government revenue from the countervailing duty. Otherwise, the domestic price in Canada and all quantities are the same as with free trade.
The United States would lose. The U.S. government pays a subsidy of $5 for each pair of blue jeans to Canada. The export price is lower, but the quantity exported is the same as with free trade. Canada would gain the $5 on each pair. The gain would be collected as government revenue from the countervailing duty. Otherwise, the domestic price in Canada and all quantities are the same as with free trade. Because Canada’s gain equals the U.S.’s loss, this is another way to see that the well-being of the world as a whole is the same as it would be with free trade.
Antidumping in Action: American steel firms reacted to increasing steel imports in 2013 by filing a number of new dumping cases. Two of these cases did not lead to the imposition of antidumping duties because the U.S. government determined that, for the specific products in these two cases, American steel firms were not injured sufficiently by the rising imports.
Antidumping in Action: American steel firms reacted to increasing steel imports in 2013 by filing a number of new dumping cases. Two of these cases did not lead to the imposition of antidumping duties because the U.S. government determined that, for the specific products in these two cases, American steel firms were not injured sufficiently by the rising imports. A challenge for steel dumping cases filed in 2013 was that U.S. demand for steel was strong. The U.S. International Trade Commission (ITC), the government body that examines injury, is reasonably strict in the standards that it imposes for this determination. Even with rising imports, American firms were selling a lot of steel. For steel products that were in strong demand, it may not have been possible for American steel firms to show sufficient injury from the dumped imports. But, why did the American firms file these two case
Exercises
Which of the following refers to dumping?
正确答案：A | Selling domestic goods in the international market at much lower prices.
难度：1 Easy Bloom's：Remember
________ occurs when a firm temporarily charges a low price in the foreign export market, with the purpose of driving its foreign competitors out of business.
正确答案：C | Predatory dumping
难度：1 Easy Bloom's：Remember
Which of the following is said to occur when a firm lowers its price to limit the decline in the quantity sold during a period of recession?
正确答案：B | Cyclical dumping
难度：1 Easy Bloom's：Remember
Which of the following is said to occur when a firm lowers its price to sell off excess inventories of a product?
正确答案：D | Seasonal dumping
难度：1 Easy Bloom's：Remember
Which of the following is said to occur when a firm with market power uses price discrimination between markets to increase its total profit?
正确答案：A | Persistent dumping
难度：1 Easy Bloom's：Remember
A firm maximizes profits by charging a lower price to foreign buyers if
正确答案：B | the foreign demand for its good is more elastic than the domestic demand.
难度：1 Easy Bloom's：Remember
Persistent dumping can occur if a profit-maximizing firm faces a ________ demand in the home market and sells its good in a ________ international market.
正确答案：C | relatively inelastic; highly competitive
难度：2 Medium Bloom's：Understand
Which country had no antidumping cases until the early 1990s, but became the top initiator of antidumping cases for the time period 2012-2016?
正确答案：B | India
难度：1 Easy Bloom's：Remember
In early 2018, nearly half of all antidumping duties in effect in the United States were on
正确答案：C | steel products.
难度：1 Easy Bloom's：Remember
Which of the following statements about dumping is true?
正确答案：C | Dumping helps to improve the importing country's terms of trade.
难度：1 Easy Bloom's：Remember
Which of the following is NOT a way in which a safeguard policy is better than antidumping policies?
正确答案：C | The interests of consumers can be disregarded since they do not play a role in determining whether to invoke a safeguard policy.
难度：1 Easy Bloom's：Remember
Which of the following statements about an export subsidy on a particular product is accurate?
正确答案：B | An export subsidy reduces the amount available in the domestic market of the exporting country and increases the amount imported by the foreign country.
难度：1 Easy Bloom's：Remember
Manual Preview
Chapters 8 through 10 focused on government policies toward imports, with little attention to government policies and business practices in the exporting countries. This chapter shifts to looking at various practices and policies that can increase exports, as well as the effects of these export-promoting activities on importing countries. The chapter has two major purposes: Examine dumping—what it is, why it occurs, how it affects importing countries, and what government policies are used in importing countries. Examine export subsidies, looking at these same issues and a few others.
Dumping is selling exports at a price that is “too low.” There are two standards sanctioned by WTO rules: selling exports at a price that is lower than the price in the home market (or in a third country market), or selling exports at a price that is lower than the full average cost of production (including a profit margin). The legal standard is one or the other, not both.
There are at least four different reasons that an exporter would dump (based on one or the other of the two definitions). Predatory dumping is intended to drive out rivals. Cyclical dumping occurs during an industry downturn in demand, with sales at prices that cover average variable cost but are below average total cost. Seasonal dumping unloads excess inventories, especially on products that are perishable or going out of fashion. Persistent dumping is international price discrimination, with the exporting firm facing less elastic demand in the home market, and having some way to limit or prevent reimport back into its home market.
What should the importing country think of dumping? The first reaction should be to welcome it—why argue if someone is willing to sell you something at a low price? This seems to be the best reaction to both seasonal and persistent dumping. Predatory dumping is potentially the most troubling to the importing country. If the exporter succeeds, it will raise prices in the future, and the importing country can be harmed. But predatory dumping probably is rare. The importing country could also have concerns about cyclical dumping. If used aggressively, cyclical dumping can export unemployment.
Slide Outline
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