Import dumping is a huge trade issue that impacts our economy — and our national security.
One of the tidbits that emerged following President Trump and Chinese President Xi Jinping’s meeting at Mar-a-Lago last week is that the president is considering issuing an executive order to target unfair import dumping from foreign companies. While the details are still coming together, it appears the order would launch an investigation to determine if trade deficits for certain product categories — mainly steel and aluminum — are the result of import dumping.
But what exactly is dumping, and why does it matter? We’re here to break it down.
Import dumping. What’s that all about?
Dumping is when a foreign manufacturer exports a product to another country at a price below what it would cost in its own market. Quite often, a dumped product is priced below what it costs to produce.
Wait — how can manufacturers afford this?
It is basically impossible for manufacturers operating in a free and open market to dump products — they need to sell at a reasonable price to make a profit and stay in business. Dumped products typically are heavily subsidized by foreign governments, thereby removing the need for the manufacturers to make a profit at all.
Why would a foreign government want to do this? Isn’t it costly?
It is! But to these governments, it’s worth the expense. Sometimes, they need to create jobs or keep people employed. The dumping is also often part of a long-term strategy to capture foreign market share, the idea being that the super low price will put domestic companies out of business and allow the government-backed foreign companies to dominate the industry.
Well, this all seems real unfair. Is dumping even allowed?
Dumping is considered unfair trade. As authors Terence Stewart and Elizabeth Drake recently noted: “The right of countries to effectively redress dumping and subsidization is part of the foundation of the international trading system.” In fact, the General Agreement on Tariffs and Trade states that dumping that hurts a country’s industry is “to be condemned,” and parties are allowed to impose duties to offset that dumping and subsidization.
When trade partners obey the rules they’ve already agreed to, dumping isn’t an issue. But when they do not, it becomes a big problem, often with global ramifications.
So how do countries like the United States respond to dumping?
Usually with a very complicated legal process that can eventually lead to tariffs. In the United States, companies or other parties that have been hurt by foreign import dumping can file a petition with the Commerce Department and International Trade Commission seeking remedy.
But while the process is complicated, the fundamental tests are simple: Did dumping occur? Did it hurt American workers and/or businesses?
The two agencies review the petition, hold hearings and eventually decide whether dumping has occurred. If so, anti-dumping duties are issued to bring the product to fair market value. The agencies can also issue countervailing duties to help level the playing field a foreign government has provided subsidies that allow the goods to be sold cheaper than domestic manufacturers.
The European Union also maintains its own legal process for issuing anti-dumping duties; the EU’s executive arm announced new tariffs last week on certain Chinese steel imports, for example.
Does the system work?
Kind of? It has provided a lifeline to many U.S. companies, unions and others who are the victims of dumping — the United Steelworkers, for example, have been involved in more than 50 trade cases since 2000 (and that’s not even counting the four dozen reviews required to maintain already established tariffs). But it is an expensive and time consuming process.
What’s the main problem?
Remember how we explained that foreign governments sometimes subsidize industries to capture market share? Well, they usually keep in mind that they’ll probably end up facing a legal challenge down the road when they set off on the dumping path. Their goal is to get away with the dumping for as long as they can — and capture as much market share as they can — so that domestic companies are permanently damaged by the end.
And in many cases, it’s worked.
Dumping has been especially harmful for smaller companies who cannot afford to mount a lengthy legal challenge. Even when they can — and win — they typically lose business and lay off workers along the way. And foreign importers even find ways to get around tariffs after they are issued. There’s evidence, for example, that some Chinese steel companies are sending products through Vietnam to avoid duties.
What American industries have been hurt by dumping?
But it looks like Trump’s executive order may focus on steel and aluminum, so let’s focus there, too.
China’s steel dumping has created a global crisis. Since 2000, China’s steelmaking capacity has risen significantly — it has accounted for 75 percent of global steelmaking growth. China now has the combined steel capacity of the United States, European Union, Japan and Russia.
China cannot possibly use all the steel it makes for its own domestic needs, so it dumps it into other markets, mainly in the U.S. and European Union. That dumping has devastated both the U.S. and E.U. steel industry — more than 14,500 U.S. steelworkers faced layoffs between January 2015 and June 2016, according to the United Steelworkers. Dozens of facilities have closed.
It’s been much of the same story in the aluminum industry. In 2001, there were 14 smelters in the United States. Today, only five are operating — the result of dumped aluminum imports, mainly from China. Thousands of American workers have lost their jobs as a result.
How have U.S. steel and aluminum companies and others responded?
As we noted above, the steel industry and the United Steelworkers have filed dozens upon dozens of trade cases seeking remedies — and they typically win those trade cases. Just last week, the Commerce Department announced duties of up to 148 percent on certain steel imports.
The Aluminum Association filed a trade case of its own in March, the first time it has done so in its 85-year history. It’s also worth pointing out that one of the last things former President Barack Obama did before leaving office was file a trade complaint with the WTO accusing China of illegally dumping aluminum on the world market.
How do foreign companies (and nations) accused of dumping respond?
They often publicly protest the duties, claiming it hurts free trade. It’s ludicrous, of course — a government heavily subsidizing its own industry to the point where its companies don’t need to even make a profit is hardly free trade.
Sometimes, foreign companies file counterpetitions. But usually, they just continue to play the dumping game. Perhaps they send product through another nation to avoid the duties. Or, they simply move on to dumping another product line.
And they might not even end up paying the duties at all — there were $2.3 billion in unpaid duties between 2001 and 2014.
It seems like the heart of the problem is that China is making too much steel and aluminum, right?
China knows it has a problem, too, and has repeatedly promised to cut way back on its steel production. It repeatedly has broken those promises. In fact, Greenpeace East Asia and Custeel reported that Chinese steel production increased in 2016. It’s clear we no longer can just take China’s word that it will fix this global problem on its own.
O.K., let’s talk about Trump’s potential executive order. What’s that all about?
Like most things with the Trump administration, nobody knows anything concrete, and will not until the actual order is released (if at all). What we can gather is that it would launch an investigation to see if trade deficits for steel and aluminum are the result of dumping. If so, that could lead to additional import duties.
Will it work?
Again, we don’t know the details of this potential executive order to comment one way or another. But what we will note is that there’s substantial bipartisan support toward further cracking down on China’s steel dumping.
There’s clear reason for that. Not only are the two industries major job supporters and economic drivers in communities across the country, they also are an essential part of our national security. If the United States loses either industry, we lose a major part of our industrial defense supply chain.
We simply must find a way to maintain and strengthen these vital domestic industries — and stop nations like China from dumping their heavily subsidized products into our open market.
What are some specific things Trump actually could end up doing to stop dumping?
Well, Trump has the power to unilaterally levy a tariff against any country. Shortly after he took office, there was some talk that he might in fact hit China or Mexico with a big tariff — but given the tone of his meeting with Xi, that seems unlikely at this point.
During the presidential campaign, Trump offered a whole list of ideas for taking on the dumping issue, including directing the Commerce Department to “identify every violation of trade agreements a foreign country is currently using to harm our workers” and directing “all appropriate agencies to use every tool under American and international law to end these abuses.” He also pledged to instruct the U.S. Trade Representative to bring trade cases against China and use “every lawful presidential power to remedy trade disputes.”
Trump also could follow the lead of former President Ronald Reagan and impose tariffs or voluntary export restraints to address specific instances of unfair trade.
Like we said, it’s hard to tell with Trump. But one thing is clear: Dumping is a big problem — and it is a problem that will not be solved on its own. The president is going to have to act.