‘Dumping’ Doesn’t Mean What You Think It Means
Every once in a while, I’ll stop chasing news cycles and instead dig into lesser-known areas of U.S. policy that deserve more attention. And so today we’re going to talk about “dumping”—a terrible-sounding word used by a lot of politicians and domestic interest groups (manufacturers, unions, etc.), usually in reference to some dastardly foreign imports they’re trying to block. But if you look at the actual, legal definition of “dumping”—and the history of U.S. anti-dumping law and policy—you’ll quickly realize that our most widely used “unfair trade” law actually has little to do with “unfair trade” at all, and almost everything to do with naked, costly protectionism. It also provides a cautionary tale for U.S. policy proposals that could establish similar systems today.
Rhetoric vs. Reality
Like a lot of protectionist policies in the United States, the U.S. anti-dumping law dates back more than a century and has expanded far beyond its original scope and intent. As Dartmouth’s Doug Irwin explains in his book, Clashing Over Commerce, the original Antidumping Act of 1916 was intended to discipline anti-competitive “predatory pricing”: In particular, it “made it illegal to sell imported goods at prices substantially lower than the market value in the exporting country ‘with the intent of destroying or injuring an industry in the United States.’” However, because proving foreign exporters’ “predatory intent” in U.S. courts was difficult and time-consuming, the law was rarely used. So Congress, naturally, went back to the drawing board a few years later and, in the Antidumping Act of 1921, “changed matters considerably.”
Under this new version, which (along with the Tariff Act of 1930) is the foundation for today’s anti-dumping law, there is no “predatory intent” requirement; AD cases moved from the courts to the bureaucracy; and AD duties simply police price discrimination. Thus, the treasury secretary could impose anti-dumping duties on imports if an investigation determined that 1) they were sold in the United States at less than “fair value” (i.e., the price charged by the exporter in its home market) and 2) were injuring the U.S. industry making the same product. As Irwin notes, “a foreign exporter charging a lower price on its sales in the United States than in its own home market could be found guilty of dumping”—regardless of the exporters’ intent or any other circumstances. The difference between that home market price (say, $110 per widget) and the U.S. export price (say, $100 per widget) is the “dumping margin,” which is then converted to a final AD duty rate applied to subject imports by dividing the margin over the company’s U.S. sales: In our very simple example, (110-100)/100 equalsa 10 percent tariff—on top of any normal tariff the U.S. already applies on the product.