The Costs of Trade Distortions

Yesterday the CBO released its response to a request by Congressman Bill Thomas for an economic analysis of the effect of the US’s current anti-dumping laws, which were modified in 2000. The modification of 2000 required that, if a US firm accuses a foreign firm of dumping, and if that foreign firm is found guilty so that tariffs are levied on it, then the US firms who compete with that foreign firm get the tariff revenue. (The US government used to keep it.)

The CBO report finds that:

Whatever gains might occur in terms of perceptions of the fairness of trade come at a cost of lower output for the economy… The [modification of 2000] increases that cost by providing incentives for more US businesses to pursue more antidumping and subsidy complaints… The law subsidizes the output of some firms at the expense of others, leading to inefficient use of capital, labor, and other resources of the economy.

The reason this caught my eye is because just last week someone was telling me about some US firms producing holiday sparklers which consist of exactly one person a few dollars worth of sparklers out of their garage. Why do they do it? Because if they have positive sales, then they’re entitled to a piece of the tariff revenue that the foreign producers of sparklers must pay as a result of earlier anti-dumping rulings. So increasingly, people are setting up these garage “businesses” in all sorts of industries — it doesn’t matter which, as long as there has been an anti-dumping ruling against them — and are collecting checks totaling tens or hundreds of thousands of dollars per year from the US government.

Nice work, if you can get it…


UPDATE: An earlier mistake about the example given above has been fixed. I apologize for the error.