ECN 465Midterm Essay Final Anti-Dumping Essay
Dumping is defined as when a foreign firm sells a product abroad at a price that is either less than the price it charges in its local market, or less than its average cost to produce the product. In this example, China’s solar equipment industry is being accused of dumping “solar panels” into the United States at prices lower than the cost of making and distributing them. If the US Commerce Department investigates that dumping has occurred, the United States will have enough reason and evidence to impose antidumping duties on Chinese imports of solar panels.
This anti-dumping duty would serve as a mechanism to strike back against supposed dumping acts by Chinese solar industry firms. The act of dumping hurts the domestic US firms as they are unable to compete with low prices that the Chinese firms are selling to consumers. Many of these antidumping duties are overused around the world and end up resulting in a terms-of-trade loss for the Home country and in this case it would be the United States. Consumers would experience this negative effect greatly as there are larger deadweight losses for the Home country. The United States would decide to impose this duty to create a strong incentive for Chinese firms to raise their export prices to reduce or avoid the duty. As the import price rises in the Home country, it experiences a terms-of-trade loss. The United States may even consider threatening to impose an antidumping duty to cause the Chinese firms to raise their prices and reduce competition in the market for solar panels. As the United States continues to threaten imposing the anti-dumping duty it may force the Chinese firms to continue to raise the import prices as they attempt to avoid conflicting anti-dumping duties that would end the effectiveness of their dumping practices.
The anti-dumping duty would serve as protection for the domestic United States firms so they could continue to be competitive as the Chinese firms raise their prices in the United States. This would be the ultimate goal of the anti-dumping duty even when it may cause a terms-of-trade loss for the United States. The trade wars that occur across the globe are clearly shown in the dumping and anti-dumping case between China and the United States in the solar panel industry. As this is a lucrative and growing market, both countries are intent on making decisions upon their own interests when these dumping trade wars end up causing more loss than gain as we see in this example. The United States may decide and continue to use the antidumping duty until the Chinese firms end their dumping practices and allow for fair competition in the domestic and foreign markets.