In another example of how our globalized economy makes the concept of U.S. vs. “them” obsolete, recent news broadcasts have announced that it may soon become more expensive to get our clothes dry-cleaned. Why? The cost of steel wire hangers may soon go up. Why? The United States is considering placing increased taxes, known as anti-dumping duties, on wires being imported from China and Vietnam. The bulk of hangers used by the dry cleaning industry in the country are imported from these countries, and the dry cleaners may be forced to pass the costs onto the consumer.
Antidumping duties are taxes that are placed on imported products that the U.S. Government has concluded are being “dumped” on U.S. consumers. A product is “dumped” when it is being sold more cheaply overseas than it costs to actually produce it at home. This practice is banned by World Trade Organization (WTO) trade rules.
Responding to complaints from U.S. wire hanger manufacturers, the responsible U.S. agencies (U.S. International Trade Commission (USITC) and the U.S. Department of Commerce) have launched an investigation into the importation of hangers from China and Vietnam. As required, the U.S. manufacturers have alleged that the imported hangers from the two countries are being sold at “less than fair value”, which is in turn injuring the local industry. The results of the investigation are due by July, 2012. If the U.S. Government agrees with the U.S. manufacturers, it could impose antidumping duties, i.e. additional tariffs, on the hangers entering the country from China and/or Vietman.
Now, here is where it gets complicated. As the news stories indicate, these additional taxes could result in higher costs to U.S. consumers. They could also harm the U.S. importers of these hangers, who in turn sell them to the dry cleaning establishments and other buyers. But should countries be allowed to get away with unfair competition? The problem is that just about every major economy has accused, and in turn, been accused and found guilty, of engaging in these practices. Furthermore, non-market economies, such as China and Vietnam, whose economies seem to be growing so much faster than the more developed economies, appear to be getting more than their fair share of these investigations.
Finally, are consumers harmed or helped by these antidumping investigations and duties? The catfish trade wars between the United States and Vietnam provide a cautionary tale.
In the late 1990s to early 2000s, U.S. importation of catfish from Vietnam had increased so steeply that by 2001 the United States, despite having a strong catfish industry of its own, had become the largest buyer of Vietnamese frozen catfish. U.S. catfish cost $3.99 per pound; Vietnamese catfish cost $2.99 per pound. U.S. consumers increasingly began to choose the cheaper, yet almost indistinguishable in taste, product. While the U.S. catfish farmers still controlled 75% of the U.S. market, this trend presented an obvious threat to the domestic industry. Furthermore, to compete with the imports, prices of the domestic fish were already falling; in 2001, the price of U.S. catfish fillets plummeted from an average of $3.00 to $2.40 per pound.
In 2002, U.S. catfish farmers lobbied for and got legislation that required the Vietnamese to be sold in the United States under such unfamiliar names as pangasius, basa and tra. They also got southern states, where most catfish farming is done, to pass legislation requiring restaurants to disclose where their fish was raised. In 2003, the U.S. catfish farmers filed allegations that the Vietnamese catfish was being dumped on the U.S. market. The U.S. Government agreed with the U.S. farmers and authorized antidumping duties, placing additional tariffs of up to 64% on the Vietnamese fish.
Still, the volume of Vietnamese catfish imported into the United States has continued to rise and the volume of U.S. catfish sold on the domestic market to fall. Furthermore, as with live wars, there have been casualties on both sides. The U.S. catfish farmers have continued to deal with the increased competition as well as rising production costs, most particularly doubled costs for fuel and feed. As a result, many catfish farmers along the Mississippi Delta have been forced to either quit the business or shrink the scale of their operations. Southern restaurants are now being forced to choose between raising their prices for U.S. catfish, using the Vietnamese import, or trying a substitute . . . like tilapia. Either scenario creates unhappy customers. One restaurant reported, in April 2011, that his customer base is declining because of the higher prices. . Larger chains are able to offer an alternative, e.g. Texas Roadhouse chain has offered the imported fish under another name and continues to offer the U.S. dish at a higher price. The small Mom and Pop restaurants are less likely to be able to afford to wait this out.
Meanwhile, the livelihood of the half-million Vietnamese who live off the catfish trade in the Mekong Delta has also been negatively affected. It appears that, in order to remain competitive in the U.S. market the importers (mostly U.S.) of Vietnamese fish have decreased the price they pay to the farmers and to the American workers in the plants that process the imported Vietnamese fish.
Undoubtedly, the ability to request that one’s government investigate and punish unfair competitors is a tool that is available to any U.S business, large or small. It is one that must be used carefully, however. In today’s globalized world, an action intended to hurt “them” may also end up hurting us.