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Are temporary trade barriers really temporary?

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Are temporary trade barriers really temporary?

New research from the Department of Economics has found that trade barriers can have lasting effects even after being removed.

Dr Christian Soegaard and colleagues explored the long-term effects of ‘anti-dumping’ (AD) duties on bilateral trade - import duties applied to goods sold at less than their normal value, usually their originating market price, in order to protect domestic industries.

While most academic literature has focussed on the short-to-medium effects of AD measures while in force, and consistently shown a negative impact (for example on consumer losses and decreases in trade with countries subject to the duty), this is one of few papers to explore the long-term consequences.

The researchers found that even after AD duties are removed, bilateral trade does not fully recover to average pre-intervention levels. They found that average bilateral trade levels after the removal of AD duties were 27.5% lower than they were before the duties were imposed.

The study is the first that analyses the long-term effects of AD removal across a large number of developed and developing countries. It found that adverse trade effects persist regardless of how long AD measures are in place, and regardless of industry and the nature of the country imposing the restrictions.

The researchers constructed a firm-level theoretical model to understand why AD duties are likely to lead to a long-term reduction in trade. The analysis suggests the effect could be explained by domestic businesses expanding while duties are in place, leading foreign exporters to either exit the market or operate at a permanently lower scale. Firms may also put insufficient investment into fixed costs such as marketing, distribution and storage while the AD duty is in force.

The research indicates that policymakers should apply greater caution in using AD duties than may currently be the case. While foreign exporters may be faced with a loss of export destinations, countries imposing such duties risk restricting cost-effective imports.

The researchers highlight that there are many areas for future research, including the impact of AD duties on domestic output and employment.

Read the full article

The Aftermath of Anti-Dumping: Are Temporary Trade Barriers Really Temporary?, by Christian Soegaard, Magdalene Silberberger, Anja Slany and Frederik Stender, was published in Open Economies Review on 6 December 2021.