Good cop

Trade: At first blush, US President Barack Obama’s tighter dumping rules, unveiled on August 26, look like an economic own-goal that will rob shoppers of lower prices while irking China. But the White House is seeking to head off still more damaging moves from Congress. Behind the rhetoric, Obama’s policies are looking slightly more trade-friendly.

In theory, anti-dumping rules protect US companies from being driven out of business by foreign firms selling goods below the cost of production. It should also shield consumers from higher prices in the long run by stopping predatory foreign rivals from establishing monopolies. In reality, calculating production costs – especially in a market-light economy like China’s – comes down to self-interested guesswork. So, many dumping duties are levied unjustly and shoppers then suffer.

Tightening such flawed rules, therefore, will help convince many that America’s president is a closest protectionist. When added to the Buy-America provision in the stimulus bill and the imposition of added duties on Chinese tyres, free-traders can now list three black marks against the administration.

But Obama’s bark on trade is far worse than his bite. The latest move may be designed to divert irate lawmakers from far more protectionist measures. Congress is mulling proposals that would allow currency misalignment to be taken into account in anti-dumping cases. It would then be a doddle to prove that a wide range of Chinese companies are dumping. With worried Democrats looking for a rallying cry ahead of the mid-term elections, the threat of reckless action against China has increased. If Obama can stymie such efforts, China may consider the latest set of rules a price worth paying.

In addition, having almost completely neglected trade liberalisation in his first year Obama has made tentative attempts to rekindle the agenda. White House efforts to revive the free trade agreement with South Korea – which has been languishing for three years – don’t support the picture of a protectionist president. Obama has also been more active recently in promoting a trade pact with a variety of Asian nations.

Of course the latest trade measures may invite petty retaliation and will do nothing to promote the president’s goal of doubling exports over the next five years. But they may have been a necessary tactical move to head off an angry Congress.