Thursday, May 17, 2012

The Environmental Costs of Anti-Dumping Policy

Maybe Adam Smith and Alfred Marshall didn't figure out all of micro theory.  Consider the case of solar panel imports from China.  The NY Times reports that the U.S is imposing a large tariff punishment on these imports. This will hurt Chinese exporters and U.S importers and help U.S producers of panels but it will also impose a global pollution externality.  A side benefit of the U.S being able to import cheap solar panels is that this increases their adoption and this reduces global GHG emissions.  In the presence of such a consumption positive externality, does this affect how we think about the economics of dumping?   The irony here is that environmentalists should support Chinese dumping (i.e. China selling their green products in the U.S for a really low price).

As I understand the economics of dumping,  regulators are concerned that exporter prices low now to kill off domestic competition and once the U.S firms are dead will sharply raise prices to monopoly levels and gouge the silly Americans.    Most Chicago economists do not believe this logic.  If China did achieve market power and tried to take advantage of it, this would trigger entry by some other developing nation who could cheaply mass produce that solar panel technology.  The "pro-dumpers" implicitly assume that there is some future barrier to entry that prohibits entry into the industry.  That sounds silly to me.

To repeat this blog post's key point.  With most goods such as cars, when we import a car there is actually a negative pollution externality so "anti-dumping" laws protect the environment. In the case of products that offer positive externality benefits,  environmentalists should be bigger fans of free trade and oppose tariffs on such products!  Free trade and the environment baby!  Think about it.