Wall Street Journal (10.23.09)

Editorial ………………

The Cost of Trade 'Enforcement'

China emulates America's bad habits.

China's move to impose stiff antidumping duties on nylon imports from the U.S. this week is not by itself a sign that a bilateral trade war is imminent. But it is a clear warning of how other countries are picking up America's bad trade habits, which have been getting worse precisely when U.S. leadership is needed.

The Ministry of Commerce in Beijing announced Monday it is imposing preliminary antidumping duties on imports from four countries of "nylon 6," a synthetic textile used in products ranging from socks to toothbrushes. The order covers imports from Taiwan, the European Union, Russia and the U.S., but American companies came in for the stiffest duties by far. Honeywell and a U.S.-based unit of Germany's BASF get hit with 36% and 30%, respectively, compared to rates as low as 4% for some of the others.

Antidumping laws, which punish companies for selling products abroad at prices less than the cost of production, have long been irritants in international trade. The argument for such laws is that they deter unfair trading practices and make freer trade more politically palatable. But differential pricing in different markets is a normal part of business, and defining the cost of production can be a politically elastic process.

This kind of "enforcement" can also quickly escalate into tit for tat actions that raise the cost of trade generally. China has imposed antidumping duties on U.S. companies in 17 cases, including nylon, since it joined the World Trade Organization in late 2001. The U.S. has imposed 59 antidumping or countervailing (antisubsidy) duties on China in the same period, and the number of cases is growing. From 2003-2006, only 10 antidumping petitions filed with the U.S. International Trade Commission became active cases. In the last three years, the number is 42.

Previous U.S. Presidents have minimized damage from antidumping cases by bolstering their trade bona fides in other ways, such as negotiating free-trade agreements. But President Obama has sparked a trade spat with Mexico over trucking, and last month the U.S. imposed discretionary tariffs of 35% on imports of Chinese tires. He and his advisers have also declared that "enforcement" is a cornerstone of their trade policy.

The nylon case suggests Beijing is finding it harder to resist domestic pressure to employ protectionist measures when Washington is walloping China. "To always retreat in trade friction will only embolden the protectionist forces in trading partners to launch more disputes with China," Mei Xinyu of a think tank linked to the Commerce Ministry told Dow Jones Newswires this week. Such thinking probably explains why U.S. companies are bearing the brunt of the nylon duties.

Globally, the number of antidumping investigations launched by governments between July and September this year has climbed by 53% compared to the same quarter last year, according to Chad P. Bown of the World Bank Research Group. The number of cases in which duties were imposed increased by 21% in the first nine months, versus a year earlier.

This kind of creeping protectionism imposes costs across the global economy even if it doesn't become a full-fledged trade war. Beijing's nylon duties show that American companies and consumers will also suffer as the world emulates the U.S. government's antidumping bad habits. An enforcement-centered trade policy may look appealing, but it can get very expensive very quickly.