South-Western College Publishing - Economics  
Imports in Restraint
Subject Exports, Barriers to Trade
Topic International Trade
Key Words Economic Growth, Dumping, Barriers to Trade
News Story

U.S. trade policy has as an objective a reduction in barriers to trade. This is the message that U.S. officials recite on their visits to other nations. However, the turmoil in the world's financial markets has devalued the currency of a number of nations. This devaluation, in turn, promoted imports into the U.S. as a number of countries have sought to export their way out of recession and, consequently, have been flooding U.S. with their goods. President Clinton is faced with the apparent conflict of advocating free trade at the same time he is seeking to prevent other countries from "dumping" their goods here.

Steel prices in the U.S. have dropped by more than a third this year and the American Steel Industry has complained that the cause of the drop is that Japan, Russia, and Brazil have been "dumping" steel. Dumping occurs when a country sells its product abroad at a lower price than it costs to make it at home. Typically, a country imposing anti-dumping legislation restricts legitimate imports as an unintended consequence and causes trading partners to retaliate. There is an alternative remedy to this drastic action3/4to impose quotas or tariffs to prohibit a sudden rush of cheap imports. These measures are permitted by international trade rules.

The Department of Commerce determines whether dumping has or has not occurred. The Commerce Department examines production costs and profits for the suspect good. The charges then go to an independent agency to determine if the dumped imports caused grievous harm to a domestic industry. If such a determination is made, the U.S. imposes prohibitive tariffs on the goods.

Although the benefit of having low-cost goods accrues to American consumers, the cost of dumping is borne by American workers in the affected industry. If the dumping were determined to be permanent, the U.S. might want to adopt policies to retrain displaced American workers. In most cases however, the dumping is temporary and the cost of temporary lay-offs of American workers is considered to exceed the value of having low-cost goods.

(Updated January 1, 1999)

Questions

1. What is a tariff? How does the imposition of a tariff restrain imports?
2. What is a quota? How does the imposition of a quota restrain imports?
3. What is "dumping"? Why would another country want to "dump" its goods here?
4. What happens to trade if the other country retaliates?

Source Michael M. Weinstein, "Economic Scene: There are wise and less wise ways to control cheap imports", The New York Times, November 19, 1998

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