Flashcards in Lecture 10 Deck (24)
Based on international price discrimination, where an
exporter charges a lower international price (in one or
more markets) than for an identical product in the
Types of dumping:
1. Predatory dumping
2. Sporadic (seasonal or cyclical) dumping
3. Persistent dumping
temporary price discrimination in favor
of foreign buyers to eliminate competitors in the short run,
and in the long run, increase prices
Sporadic (seasonal or cyclical) dumping:
The firm lowers
prices temporarily in the foreign market, due to seasonal or business cycle factors, to dispose of surplus production (e.g., perishables) or during periods of slack demand.
Long-term price discrimination
How does persistent dumping work?
1. Price-discriminating monopolist, faces two (or more) markets: domestic market with inelastic demand and foreign market with more elastic demand (where consumers can choose from alternative suppliers)
2. Firm maximizes profits by equating marginal costs (MC) to marginal revenues (MR) in each of the two markets.
“Persistent dumping” depends on:
1) High price country unable to import from low-cost country
2) No retaliation
Result of dumping
High price at home, low price abroad; foreign competitors often perceive “dumping” at low
international price to be “unfair” competition.
Can “dumping” be redressed?
If dumping is demonstrated to exist and to have injured the
importing country’s industry, then ...
The WTO permits the importing country to charge an anti-dumping duty, up to the amount of the price differential between the two countries (the “dumping margin”).
Determination of Dumping in U.S.
1. Has dumping occurred? (U.S. Commerce Dept.)
2. If yes, has domestic industry been injured?
(U.S. International Trade Commission)
3. If yes, what is amount of anti-dumping duty?
(U.S. Commerce Dept.)
Dumping complaints by U.S.: recent cases (4)
1. Stainless steel – Mexico
2.Orange juice – Brazil
3. Polyethylene bags – Thailand
4. Shrimp – Vietnam
5. Footware, iron and steel products, etc. – China
- Used to increase a nation’s exports and support domestic exporters by decreasing the effective price to importers
- Traditionally used in selected industries: agriculture,
Effects of Export Subsidies
1. Decreases price in importing country, increases price in exporting country, increases exports.
2. Redistributes income and welfare away from exporting
country consumers (via price increase) and taxpayers (via
subsidy cost) and importing country producers (via price
decrease abroad), and toward domestic producers and foreign consumers.
3. Ironically, worsens terms of trade (PE/PI) in the subsidizing
country by increasing price at home and decreasing price
4. Importers are permitted under WTO to impose
“countervailing duties” to offset effects of subsidies.
Voluntary Export Restraints
An agreement between an exporter and an importer in which the exporter "voluntarily" agrees to limit exports (typically with the implied threat of trade
retaliation if this is not done).
Other Non-Tariff Trade Barriers
1. State trading
2. National procurement policies
3. Technical barriers to trade
Technical barriers to trade
Rules, regulations, and standards that limit imports for reasons beyond public health and welfare requirements
National procurement policies
Increase costs to governments
Government acts as monopolist or monopsonist
What is an example of VER?
Exports of Japanese automobiles to the U.S. in 1981-2985
What was the law of unintended consequences for the VER of Japanese automobiles?
Promoted development of luxury Japanese auto industry
What are the limitations of Non-trade Tariff Trade Barriers?
1. More cumbersome than tariff's in protecting domestic industry
2. Policy substitution
3. Non-transparent, opaque
4. Increase fixed costs and deter market entry
5. Fragmentation of production process further complicates trade disciplines for NTB's
Freer Trade and Reduction of Trade Barriers Permit:
1. Net welfare gains, though welfare of individual groups may increase of decrease
2. Lower import prices
3. Realization of scale economies and cost savings
4. Reduction of organizational inefficiency and inefficient production arrangements
5. Reduction of potential for monopoly power by opening markets
6. Factor accumulation accompanying economic growth
7. Increased productivity in export sector
8. Increased innovation and technological change
9. Avoidance of rent-seeking