Dumping theft

The recent U.S. Commerce Department recommendation for imposition of substantial anti-dumping duties on imports of solar panels from China has opened the spillway for a flood of debate over the wisdom of such action.

This is not a surprise. It happens every time the U.S government does anything to uphold the rights of domestic producers. The usual suspects make the usual arguments. The anti-dumping duties will raise prices to consumers thereby causing inflation and dampening market growth. The business of the installers of the dumped products will suffer and there may be fewer installation jobs. The United States provides many financial incentives similar to those available in China. The Chinese have a real cost advantage because of the scale of their production and their low labor costs, and they are therefore not really dumping. But if they were dumping, the anti-dumping duties will make no difference because of their inherent cost advantage. Imposition of the duties may trigger a trade war and the Chinese will retaliate with their own anti-dumping duties or other measures.

Although I’ve heard them a million times, I never cease to be amazed at these arguments because of their implicit assumption that the U.S. decisions in these matters are primarily a matter of discretionary trade policy. The argument is always cast as if the U.S. government is acting gratuitously in ways to harm its own economy and citizens by attacking innocent foreigners.

This is, of course, decidedly not the case. The U.S. constitution guarantees the right to hold property and the power of the state is committed to preventing theft of private property. That is the fundamental basis of our free market, democratic, capitalist system. One can enter into extended discussions about the various kinds of dumping activity, and about how dumping is calculated, and about abuses of the anti-dumping laws. But the laws have been there for some time and are there for a reason. Nor is the United States the only country that has and uses anti-dumping laws. Virtually all countries have and use them and they are fully incorporated into the rules of the World Trade Organization and of all the other free trade area and bi-lateral free trade agreements. The reason this is so is that dumping is a classic method of theft. It was particularly virulent during the Great Depression when countries engaged in competitive currency devaluation in order that their exports would be priced less expensively than those of competing exports from other nations. The reason everyone wanted cheaper exports was because exports generated jobs and everyone desperately wanted jobs. So each country tried to steal the jobs from other countries by artificially reducing its prices through constant devaluation. The International Monetary Fund (IMF) was created after World War II precisely to prevent this from happening in the future.

Dumping occurs when a product is sold in a foreign market below its cost of production and/or below the price at which it is sold in the home market. It is illegal under the laws of the United States and most other countries and also under the rules of the WTO because it is understood to be a form of theft. When a product is illegally dumped in the U.S. market at an artificially low price, the buyer of the product may feel that he or she is getting a great bargain. But the domestic producer of the competing American product feels that his or her livelihood is being stolen and the United States doesn’t sanction theft even if theft might help some people. Look at this way. Suppose I steal your new Rolex watch and sell it to friend for $100. It’s a great deal for my friend and I also make money. You have lost your watch, but look how great that was as a way to stimulate the economy. Somehow it doesn’t sound right when you say it that way, does it? It doesn’t sound right because it isn’t right. In fact, it strikes at the heart of the very private property rights necessary to maintain the capitalist, democratic, free market system.

The U.S. government doesn’t have policy discretion in these matters nor should it. The law says dumping is illegal and provides for petition and redress by and to those who believe they are being harmed by dumping. Upon receiving a complaint, the Commerce Department must review the complaint and determine if there are sufficient grounds for an investigation. If so, it must investigate. If the investigation finds illegal dumping taking place, the department must act as if theft is underway and recommend measures to stop it. That means recommending imposition of anti-dumping duties. But just to make sure that there is a real need to act, the law requires the independent International Trade Commission (ITC) to review the Commerce recommendations and to determine if actual injury is taking place before duties are imposed. In other words, it’s possible that dumping is taking place but that no jobs are being lost and that no one is suffering. If so, the ITC halts any imposition of anti-dumping duties. Only if it finds significant injury does the ITC allow the duties to actually be imposed.

The point is that the law is there to defend private property and that it has many safeguards built in to protect consumers as well.