Focus switches to anti-dumping measures

What do Greek sultanas, Chinese kitchen sinks and Brazilian A4 copy paper have in common? They are subject to special tariffs.

US President Donald Trump signs Section 232 Proclamations on Steel and Aluminum Imports in the Oval Office of the White House.

What do Greek sultanas, Chinese kitchen sinks, Brazilian A4 copy paper and American-made water cooling towers have in common? They are all subject to special tariffs imposed by the Anti-Dumping Commission, a branch of the Department of Industry in Canberra that comes to the rescue of Australian firms who would like a bit of help from government.

As Australian exporters and Prime Minister Malcolm Turnbull, just back from a goodwill trip to Washington, anxiously await Donald Trump’s decision over whether Australia will be spared from new steel and aluminium tariffs, it’s worth recalling the US isn’t the only country pursuing greater protectionism.

Labor leader Bill Shorten this week promised to “triple” penalties for dumping, fearing looming US tariffs will divert cheap foreign steel to Australia. Dumping occurs when one country sells products below cost in another country. All members of the World Trade Organisation have the right to “protect themselves” against dumping via arbitrary tariffs.

Chad Bown, an analyst at the Peterson Institute for International Economics, estimates Australia would lose $US76 million ($97.5m) of steel exports and $US37m of aluminium exports if our products are included in the 25 per cent steel and 10 per cent aluminium tariffs.

“Australia could then request from the WTO and potentially be authorised to retaliate against US exports that would similarly eliminate $113m of US trade,” he tells The Weekend Australian. Article 21 of the WTO allows nations to impose tariffs because of “national security”, which other nations can challenge in court.

Average tariffs around the world

Mr Shorten needn’t bother trying to beef-up the dumping system, given Labor already strengthened it when in government in 2009. Two years ago the Productivity Commission found Australia was among the most frequent users of anti-dumping measures, of which more than 60 per cent were imposed on steel and mainly from Asian countries. Requests and measures have increased significantly since 2008. Overall, the average anti-dumping tariff was 17 per cent between 2009 and 2015, more than three times Australia’s general maximum tariff of 5 per cent.

“Measures related to steel were significant then, and I expect we will now see even greater recourse to anti-dumping measures in the wake of the announced increases in US tariffs,” says former Productivity Commissioner Melinda Cilento, now chief executive of CEDA, who oversaw the report.

“The conclusion remains the same today in my view — greater use of anti-dumping measures will make Australia worse off, with benefits for the recipients of this protection outweighed by the costs for industries using the protected goods, consumers and the broader economy,” she adds.

At a time state and federal governments are ramping up infrastructure spending and home building is booming, it’s perhaps odd that we’re artificially pushing up the cost of construction.

Indeed, the Commission recommended dumping the whole anti-dumping system. “Almost all the arguments put forward to justify this type of protection lack credibility,” the Commission said, arguing ‘‘fairness’’ claims made little sense given the damage higher prices caused to the rest of the community.

“The focus on predation as a rationale for anti-dumping systems disappeared by the 1920s and is now widely acknowledged to be irrelevant,” it added.

At the very least, the current system is too generous. Even firms in profit with growing sales can apply for protection when the supposed “dumping” prices of competitors are as little as 2 per cent below their so-called fair level.

“The material injury test simply requires that injury is not immaterial,” the Commission said, pointing out that proving goods are “dumped” is theoretically difficult — what’s a fair price? — and entails significant bureaucratic and legal costs.

While few countries can take the moral high ground on trade — except perhaps Singapore and Hong Kong, where average tariffs are practically zero — Trump’s populist new tariffs, resting as they are on specious “national security” grounds, need to be resisted and condemned. They will encourage producers in other nations, including in Australia, to demand similar or increased “protections”. They fuel a global anti-trade sentiment that is already animated by the emerging spat between Britain and the European Union.

Standard arguments against tariffs should be well known. “Much as a rise in the price of oil helps domestic oil producers but harms the much larger group of domestic oil consumers, so too should a self-imposed rise in the price of steel and aluminium serve to raise demand for a few producers but reduce real incomes for the much larger set of consuming businesses and households,” noted JP Morgan economists in New York yesterday.

The negative relationship between average tariffs and living standards is striking. The poorer the nation, the higher its tariffs tend to be. Egypt, India and Brazil have average tariffs above 13 per cent, while Australia, New Zealand and Japan have averages of 2.5, 2 and 4 per cent.

That doesn’t imply causation — Asian export powerhouses such as Korea and Japan developed from behind high tariff walls after World War II. But countries at similar levels of development, such as the US, EU and Australia, only harm each other by imposing tariffs on each other’s products.

US President Donald Trump has threatened to impose tariffs on imports of cars made in Europe in an ongoing and escalating riff with the European Commission.

Indeed, tariffs and quotas at their core are fundamental breaches of liberty: why should the state thwart a voluntary — and therefore mutually beneficial — transactions between two parties?

These arguments are likely to receive short shrift from the US President, who tweeted that trade wars were “good” and “easy to win” last week. As The Economist put it yesterday: “Unlike many other subjects on which Mr Trump is wrong but not terribly invested, trade is an area of his policy ignorance that he cares about deeply.”

Trade data out this week would have only emboldened the President and his trade hawks, such as newly ascendant adviser Peter Navarro, who appears to have outmanoeuvred departing pro-trade adviser Gary Cohn. China reported a $US34bn trade surplus in January, two thirds attributed to the US. Throughout 2017 the surplus reached a record $US276bn. Meanwhile, the US trade deficit in January swelled to $US57bn, its largest monthly level in 10 years.

The President has this week tweeted he’s “acting swiftly on Intellectual Property theft”, a comment directed at China.

“This is probably one area where Trump does have cause for challenge,” says Alan Oxley, an Australian former top trade negotiator. “It is common place in China that foreign companies are required to give the government their intellectual property.”

In a week dripping with concern about global trade wars, it’s worth remembering the Trump administration’s trade policies are still more bark than bite.

Indeed, the imminent US tariffs affected only 2 per cent of US imports, and a sliver of the country’s gigantic economy, before exemptions for Canada and Mexico (and probably Australia too) were announced. Only 6 per cent of US steel imports come from China.

For free traders, the Trans-Pacific Partnership, signed this week, is reason for hope. Even without the US it will include 11 nations and form the third largest trading bloc apart from the European Union and NAFTA, covering areas of commerce over which WTO rules are patchy or absent.

“For the first time in a trade agreement, TPP-11 countries will guarantee the free flow of data across borders for service suppliers and investors as part of their business activity,” says Innes Willox, the head of the AiGroup, a trade group for manufacturers. “This ‘movement of information’ or ‘data flow’ is relevant to all kinds of Australian businesses — from a manufacturer with offshore sales offices and online order systems to a telecommunications company providing data management services to businesses across a number of TPP-11 markets.

Our manufacturers, not to mention the rest of the economy, would do better still though if the government scrapped the artificially high price of steel created by the anti-dumping regime.

“The benefit to Australia from a unilateral removal of its remaining import tariffs would be 1.5 times greater than the benefit it would receive were every other country in the world to remove their tariffs,” the Commission concluded in 2016.

In an era of stagnant wages, perhaps slashing consumer and producer prices could even win votes?