Dumping, if proven, is considered to be unethical and in some cases illegal. This is because
of the damage it can do to domestic producers. It is considered unfair if domestic businesses
have to compete with foreign rivals that are selling the same goods below the costs of
production. Over a long period of time, domestic producers are likely to go out of business –
particularly if foreign suppliers have the financial resources to support long-term dumping.
3. Describe (a) one advantage and (b) one disadvantage of using subsidies as a trade
barrier.
(a) One of the main advantages of export subsidies is that more domestic firms might be
encouraged to enter the market. This will help to boost exports, employment and
improve the current account.
(b) The main disadvantage of subsidies is that incentives for firms to look for cost-saving
efficiencies might be removed.
4. Assess the possible effects of the USA imposing tariffs on steel imports.
The tariffs proposed by the USA in 2018 were chiefly designed to protect US businesses by
making imported goods more expensive. As a result, tariffs would help to redirect spending
in favour of US-produced goods. This should help US businesses increase their sales,
revenues and profits. For example, in January 2018, the US government announced that it
would impose tariffs on solar panels and washing machines. These tariffs should help
protect US businesses that produce washing machines and solar panels. Whirlpool, which
campaigned for protection against rivals Samsung Electronics and LG Electronics after
years of anti-dumping cases, was relieved at the action.
In March 2018 President Trump imposed tariffs of 25 per cent on imports of steel and 10 per
cent on imports of aluminium. This was in response to a government report which concluded
that foreign shipments of metals were threatening national security interests. Clearly, US
businesses in these industries would benefit from the higher prices that foreign rivals would
now have to charge. In the short term some would argue that these trade barriers will benefit
the US businesses threatened by cheap imports.
However, a number of countries have criticised the tariffs and said that they would retaliate.
For example, the EU said that the tariffs violated international trading rules and promised to
retaliate if imposed. They proposed restrictions on imports of Harley Davidson motorbikes
and Kentucky bourbon. China also said it would retaliate with around US$3 billion of tariffs.
It promised to suspend tariff concessions on 120 US food products. Fresh and dried fruits,
almonds, pistachios and wine would be subject to an additional 15 per cent tariff and eight
other items, including frozen pork, would be subject to a 25 per cent tariff. If these tariffs
were imposed in full a number of US businesses could be hit hard.
Another worrying issue was the rising price of imported components. Jason Andringa, who
runs the agricultural and construction equipment maker, Vermeer, in Iowa, says that tariffs
could have a negative impact on businesses. Vermeer imports cabs assembled in China,
which it uses for its drilling vehicle made in Iowa. This helps the company to keep costs
down. However, these components would be hit by the new tariffs, which would raise costs,
reduce competitiveness and threaten jobs.
Figure 22.1 shows how US businesses might be affected by Chinese tariffs. According to the
chart, California, Washington State and Texas look to be the worst hit. However, businesses
in many other US states will feel the impact of the Chinese tariffs. According to the graph
California could lose approaching 300,000 jobs and Washington State and Texas 150,000,
as a result of retaliatory tariffs. The second graph (Figure 22.2) shows that the worst hit
industry will be the plastics industry where businesses will lose almost 300,000 jobs. This
evidence, if correct, supports the view that if import controls are used there is the threat of an
all-out trade war. This would harm both nations. Many would argue that no one can win a
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