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Chapter 9: Problem 4

In 2017 , shortly after President Trump took office, the U.S. Department of Commerce considered imposing tariffs on European steel companies it accused of dumping steel on the U.S. market. An article in the Wall Street Journal quoted Secretary of Commerce Wilbur Ross as asserting, "A healthy steel industry is critical to our economy and manufacturing base, yet our steel industry today is under assault from foreign producers that dump and subsidize their exports." What is dumping? If the United States imposes tariffs on imports of steel from Europe, briefly explain who is likely to gain and who is likely to lose.

Short Answer

Expert verified
Dumping is when a country or firm exports a product at a price lower than in its domestic market. If the U.S. imposes tariffs on steel imports from Europe, domestic steel producers are likely to gain due to improved competitive pricing, while consumers and firms that use steel, and European steel producers could potentially lose due to increased costs and reduced sales respectively.

Step by step solution

01

Definition of Dumping

Dumping in economic terms refers to a situation where a country or firm exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market. The intention behind this practice can range from penetrating a foreign market to getting rid of surplus stock.
02

Possible Gains from Imposing Tariffs

If the U.S. imposes tariffs on steel imports from Europe, certain groups are likely to gain. Primarily, domestic steel producers would benefit as the foreign steel becomes more expensive due to tariff, making domestic steel more competitively priced. This could result in increased sales, potentially leading to growth and job creation in the domestic steel industry.
03

Possible Loses from Imposing Tariffs

On the other hand, there are also likely to be losers from the imposition of tariffs. These would primarily be those who consume or use steel as an input in their production process. These companies might need to pay more for steel (whether they buy domestically produced steel or imported steel with the added tariff), thereby increasing their costs. This could potentially lead to price increases for the end consumer or decreased profits for the companies. In addition, European steel producers could lose out on revenue due to decreased sales.

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Most popular questions from this chapter

Who gains and who loses when a country imposes a tariff or a quota on imports of a good?

Does everyone gain from international trade? If not, explain which groups lose.

Briefly explain whether you agree with the following statement: "Japan has always been much more heavily involved in international trade than are most other nations. In fact, today Japan exports a larger fraction of its GDP than Germany, the United Kingdom, or the United States."

(Related to the Apply the Concept on page 307) An economic analysis of a proposal to impose a quota on steel imports into the United States indicated that the quota would save 3,700 jobs in the steel industry but cost about 35,000 jobs in other U.S. industries. Why would a quota on steel imports cause employment to decline in other industries? Which other industries is a steel quota likely to affect?

What is dumping? Who benefits and who loses from dumping? What problems arise when anti-dumping laws are implemented?
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