Kim J. Ruhl

ABSTRACT

Multilateral trade agreements, such as the GATT/WTO, have severely restricted the ability of countries to raise tariffs on imports. One of the few tools still available to policy makers under the WTO rules is antidumping law — and antidumping investigations have become a major impediment to free trade. The United States has initiated more than 1200 antidumping investigations since 1980; globally, more than 200 antidumping investigations are initiated per year.

The existing literature on the impact of antidumping policy has primarily focused on industry level models and the strategic interactions between firms. These models quickly become too difficult to use in general equilibrium aggregate models. In this paper I develop a tractable model of antidumping policy and embed it into a general equilibrium model with heterogeneous firms and monopolistic competition. The model of antidumping policy embodies two key features of the existing law: firms charging “low” prices are (i) more likely to be accused of dumping and (ii) face larger antidumping duties.

In the calibrated model, the existing U.S. antidumping policy has an aggregate impact equivalent to a 6 percent tariff that is uniformly applied to all firms. The welfare costs of antidumping policy come, not only from the higher prices charged by firms subject to antidumping duties, but also from the higher prices that all exporting firms optimally charge in order to minimize the probability of being accused of dumping.