McGraw-Hill/Irwin © 2012 The McGraw-Hill Companies, All Rights Reserved Chapter 11: Pushing Exports

The chapter has two major purposes: Examine dumping—what it is, why it occurs, how it affects importing countries, and what government policies are used in importing countries. Examine export subsidies, looking at these same issues and a few others.

DUMPING Selling exports at a price that is “ too low, ” a price below “ normal value ” or “ fair market value. ”

Dumping Selling exports at a price that is “too low,” a price below “normal value” or “fair market value.” Either  The export price is lower than the price charged for comparable domestic sales in the home market of the exporter. or  The export price is lower than the full unit (average) cost (including a profit margin).

There are at least four different reasons why an exporter would ‘engage in dumping’ (based on one or the other of the two definitions). 1.Predatory dumping is intended to drive out rivals. 2.Cyclical dumping occurs during an industry downturn in demand, with sales at prices that cover average variable cost but are below average total cost. 3.Seasonal dumping unloads excess inventories, especially on products that are perishable or going out of fashion. 4.Persistent dumping is international price discrimination, with the exporting firm facing a less elastic demand curve in the home market, and having some way to limit or prevent reimport back into its home market.

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 11.1 Persistent Dumping

Actual antidumping policies: What is unfair? If dumping injures the domestic industry: WTO rules allow countries to retaliate against dumping. Antidumping duty Proposals for reform

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Exports Plus Imports as a Percentage of GDP Figure 11.2 Top 11 Initiators of Antidumping Cases

Governments in exporting countries sometimes use export subsidies to increase their exports. In fact, a large enough export subsidy can turn an import-competing product into an export product. If markets are competitive, these export subsidies create inefficiency by distorting production and consumption. For a large exporting country an export subsidy causes a decline in its international terms of trade. For both a small and a large country, an export subsidy results in net national loss as well as a loss for the whole world. As a case study, the box “Agriculture is Amazing” discusses subsidies to food production and export.

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 11.3 Export Subsidy, Small Country, Exportable Product

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 2.2 The Market for Motorbikes: Demand and Supply Figure 11.4 Export Subsidy, Large Country, Exportable Product

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 11.5 An Export Subsidy Turns an Importable Product into an Export

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 11.6 A Foreign Subsidy and a Countervailing Duty

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 11.7 A Two-Firm Rivalry Game with No Government Subsidies: Airbus versus Boeing

Copyright  2012 by The McGraw-Hill Companies, Inc. All rights reserved Figure 11.8 A Two-Rivalry Game with Government Subsidies: Airbus versus Boeing