Wednesday, August 17, 2016

Dumping on (anti-)Dumping

US anti-dumping laws transfer income from American consumers to American producers. Of course it's rarely stated that way. Generally it's alleged to protect American jobs.  At least one of our current presidential candidates is pushing tariffs as job-savers.

The WSJ gives a great example, the case of the US wooden furniture manufacturers. They sued China for dumping in 2002 and in 2004 they won, receiving both hundreds of millions of dollars in payments from China (thanks Byrd Amendment!!) and tariff relief.

Wow, isn't that great for American workers?


Stanley Furniture Co., in High Point, N.C., received the biggest payout, $83.5 million, and says it used the money to invest heavily in a new line of domestically produced children’ furniture. But made-in-America wasn’t enough of a draw, said Stanley’s chief executive, Glenn Prillaman, who shut down the line in 2014. In 2015, Stanley’s U.S. employment fell to 71, down from 2,600 in 2005.

“The money allowed us to fight that fight on the scale that we fought for as long as we did,” he said. But “the consumer wasn’t willing to look past short-term gains of getting something for less” and continued to prefer imports.

In other words even with the tariff protection and $83.5 million of cash, the company continued to be so inefficient that they more or less went under.

Then there's the case of the company who spearheaded the suit:

As for Mr. Bassett, he says the $54.4 million in Byrd amendment money his Vaughan-Bassett Furniture Co. received financed factory modernization. Now, the outlook for the Galax, Va., firm “has never been brighter in 15 years,” said Mr. Bassett, the firm’s chairman. In part that’s because Vaughan-Bassett is making solid wood furniture, which is becoming increasingly trendy.

Even so, he said, Vaughan-Bassett’s employment of 560 is down by about half from 1,200 in 2005 when the company started receiving Byrd amendment money. Employment is even down from 700 workers in 2009, during the depth of the housing collapse. The new computerized machinery Vaughn-Bassett bought requires fewer workers, he said.

In other words, he took his dumping money and automated production while dumping his workers!

Now Bassett was smart and Stanley was dumb, so kudos to Bassett for making a smart business move.  But should US consumers have to pay for Stanley to automate their production?

So if price protection and millions of dollars won't protect American jobs either because of a poorly run company or a decision to automate, what to do?

My own view is to acknowledge that the unintended consequences of anti-dumping make it impractical as a job protection device.

If the Chinese government wants to subsidize Americans' purchases of furniture, so be it.

 Let's use something like a Universal Basic Income to deal with job displacement. Let's subsidize worker mobility so that furniture workers out of a job can move to a more dynamic sector of the economy possibly in another area of the country. Let's stop subsidizing home ownership, which when prices fall (which they will do again people!), people aren't "stuck" in a jobless geographic area.

But handing US taxpayer money to manufacturers who are going to squander it or do things the government doesn't want is a bad option. Maybe the government should also mandate what the companies getting relief must do with the money? Yes, that's the ticket. What could possibly go wrong?


Unknown said...

Another good article for my class! I like this one too, "The US filed a WTO dispute to save jobs- by increasing imports from China"

Ariel said...

Sorry, didn't mean for that to be from Unknown...

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TM Lutas said...

I disagree on the "so be it" attitude. Chinese citizens lose out when their government subsidizes exports. Thanking them for lowering their standard of living in a very public way that informs them of how their government is screwing them in order to hide the government's policy incompetence would seem to me to be a perfectly fine way to respond to dumping without causing any negative macroeconomic consequences.

What's the net GDP effect on bureaucrats hanging from lamp posts?

ConnGator said...

UBI has several challenges but I don't see a better answer to the coming wave of hyper-automation.

I truly feel this is an overlooked problem: almost no politicians are talking about it.