The President's Rotten Record on Trade

Why George W. Bush is the most protectionist president since Herbert Hoover

Bruce Bartlett from the June 2006 issue

(Page 4 of 4)

The Dumping Delusion

Although Bush and his team have shown contempt for overarching free trade principles pretty much every step of the way, the administration excuses a lot of the new trade protection on its watch by saying it’s mandated by existing law, especially “anti-dumping” laws that require the imposition of tariffs and give the president no latitude. There is some truth to this defense. But in many cases the Bush administration has simply used anti-dumping statutes as backdoor protectionism that could have been resisted if it had chosen to do so.

The term dumping is commonly understood to mean selling foreign products at below cost, possibly because of subsidies from the producers’ governments. But legally speaking, dumping exists simply when a product is sold in the U.S. for less than it is sold for in other markets. No evidence is needed that the product is being sold below cost or that any subsidy is involved.

Although dumping is assumed to be unfair when it involves international trade, a business might sell products at seemingly unprofitable prices for many reasons commonly accepted as reasonable in the domestic market. For example, when introducing a new product against established competition, a company may need to sell at a loss in order to gain a foothold in the market. It may need to dispose of inadvertent overstocks, or it may hope to make a profit through ancillary sales—think of Barbie dolls that are sold cheaply because the real profit is in the clothes.

U.S. businesses often use anti-dumping petitions as a tool to prevent foreign competitors from reducing prices and undercutting the domestic companies’ profits and market share. Even when foreign firms are confident of winning a dumping case, they may not want to go through the effort and expense to defend themselves in what is rightly seen as a biased process. So they back off.

Though the idea that there is something inherently unfair or unjust about dumping has been entrenched in U.S. law for more than 100 years, the law was rarely enforced until the 1970s. At that time it was broadened to allow tariffs even in cases where no dumping was even alleged, as long as imports caused some injury to a domestic industry. Tariffs also could be imposed as retaliation for a foreign country’s restrictions on U.S. exports.

Despite the Bush administration’s claim that many of its tariff decisions are the result of obeying longstanding anti-dumping law, many of these investigations are instigated by the Commerce Department as a matter of policy and are rigged to guarantee that dumping will be found. Almost all of the tariffs imposed on Chinese furniture, Vietnamese shrimp, and other goods have taken place under the guise of anti-dumping enforcement when they are really policy actions. As a consequence, other countries increasingly are using their own anti-dumping laws against American goods. Like all protectionist moves, anti-dumping actions set in motion a domino effect of reactions and restrictions that clog up world markets and ultimately make us all poorer than we otherwise would be.

The New Herbert Hoover

Bush’s overt protectionism may not be that great. But in overall policy, he’s the most protectionist president since Hoover. All of Hoover’s successors until Bush understood the fragility of free trade and the dangers of playing politics with it. They also understood that there is an inherent drift toward protectionism that needs to be vigorously resisted and offset by aggressive trade-opening measures. Bush has gone in the opposite direction, repeatedly using protectionism to buy short-term political support and sabotaging multilateral trade negotiations.

Bush also has treated the World Trade Organization with contempt. He has taken actions that he knew would be ruled illegal, such as the steel tariffs, and made little effort to redress illegal elements of U.S. law, such as the Foreign Sales Corporation tax break and the Byrd Amendment.

The former, which the WTO ruled to be a de facto subsidy, was finally repealed in 2004 with the White House and Treasury Department doing virtually nothing to aid the effort. The latter is a law enacted in 2000 that allows some anti-dumping duties to be paid directly to private businesses—making explicit what is already implicit in anti-dumping measures, which always help specific businesses at the nation’s expense. (According to the Government Accountability Office, half the benefits of this legislation went to just five companies.) The WTO ruled the Byrd Amendment illegal as well.

Under Bush, free trade is probably in its weakest position since the 1920s. The ultimate consequence of Bush’s abandonment of principle may not come on his watch. But thanks to him the dangers associated with protectionism are growing, and they will likely lead to future trade skirmishes and wars that will lower the standard of living of all Americans. Unfortunately, Bush seems comfortable with that legacy.

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