Policy response to dumping home net welfare bcd the

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Unformatted text preview: pply the tariff. Policy Response to Dumping •  An7dumping Duty (AD) –  The threat of AD creates an incenGve for the Foreign firm to raise its export price even before the tariff is applied Why? the duty will be lower as a fracGon of the final import price (more $ in the pocket of the foreign monopolist) –  This increase in the import price results in a terms ­ of ­trade loss for the Home country. Policy Response to Dumping Home Net Welfare:  ­ (b+c+d) The loss of (c) is the extra costs associated with the threat of an anGdumping duty. S Price P b d b+d P2 a c c c P1 M D S1 S2 D2 D1 (a) Home market QuanGty M2 M1 (b) Import market Imports Policy Response to Dumping •  Foreign firms’ responsiveness to the threat of AD gives Home firms an incenGve to charge Foreign firms with dumping, even if none is occurring. •  These incenGves lead to excessive filings of anGdumping and countervailing duty cases. •  AnGdumping/Countervailing duGes versus Safeguard Tariffs: –  criteria for protecGon much easier to meet in the case of AD/ countervailing duGes –  Procedure: •  Dept. Commerce decides if an import good is sold at “less than fair value” •  Int. Trade Commission (ITC) decides if the import provided “material injury” to the domesGc industry –  No need for presidenGal approval Policy Response to Dumping •  Foreign firms’ responsiveness to the threat of AD gives Home firms an incenGve to charge Foreign firms with dumping, even if none is occurring. •  These incenGves lead to excessive filings of anGdumping and countervailing duty cases. •  An7dumping/Countervailing du7es ≠ Safeguard Tariffs: –  Safeguard tariff = tariff imposed when a large, tempor...
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This document was uploaded on 01/18/2014.

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