US import surges as a pretext for protectionism 





























Simon Evenett is Research Fellow, CEPR and Professor of International Trade at the University of St Gallen, and Johannes Fritz is a Max Schmidheiny Foundation Research Fellow at the University of St Gallen This column analyses import surges into the US from 2006 to 2016 to put these tariff increases in perspective. Using a simple, theory-inspired method for identifying surges, it finds that during 2014-6 a category of manufactured good in the US had a one-in-32 chance of witnessing an import surge each year. US import surges aren’t concentrated in sectors where China has severe excess capacity either. On 22 January 2018, President Trump imposed so-called safeguard duties on imported washing machines and solar panels and cells (Lighthizer 2018). As Bown (2017) has demonstrated, in the past the US rarely resorted to this form of import restriction. Arguably, now the policy context is markedly different. All too often, China is painted by Trump administration officials as the bogeyman disrupting vast swathes of global trade, in particular in sectors with excess capacity. Are import surges so frequent that they provide a pretext for widespread protectionism against China and other US trading partners? Or, are import surges so localised that, at most, surgical policy intervention is merited? To put these recent tariff increases, as well as the drumbeat of accusations against China, in perspective, this column reports data on the frequency of surges of imported manufactured goods into the US from 2006 to 2016 and on the sources of these surges. The prevalence of import surges in sectors the Chinese government has admitted are subject to severe excess capacity is examined as well. But what is an import surge? What causes them? And how can they be identified in readily available international trade data? We turn to these matters now. Identifying import surges in a theory-consistent manner While recognising that rapid expansions of imports can harm competing domestic firms and their employees, economists often struggle to understand why policymakers fixate on such surges (an endogenous variable), rather than on the causes of the surges. Even then, often the welfare benefit of greater imports is thought to exceed losses to domestic producer interests. To fix ideas, consider a large open economy where domestic buyers are supplied by foreign suppliers and domestic firms. Suppose one group of foreign suppliers benefits from a large fall in incremental production costs (perhaps due to receipt of government largesse) or those suppliers decide to dump on the market surplus inventories. In a competitive market, the theoretical prediction in the case of homogenous goods is clear: the foreign suppliers whose costs fall will see their market share increase and the total value of imports by other foreign suppliers will fall. The key to identifying import surges involves not only checking whether imports increased a lot from one (or more) source, but whether the total value of imports from other sources fell. Readily available United Nations data on the reported values of international trade can be used to identify when surges of imports occur, and our goal was to develop a method that can be easily replicated by others. Specifically, using highly disaggregated data (at the six-digit level), we examined manufactured imports into the US from 2006 to 20161 and identified, for each product and year, the foreign trading partners where: the import share from one (or more) foreign source rose by at least 5% in the year in question; the total value of imports from all other (‘non-surging’) sources fell in the year in question. So as to avoid counting trade flows of little commercial significance as import surges, we also imposed the following two requirements on observed trade flows in the year in which an alleged surge has taken place: the total value of imports from each foreign trading partner responsible for the surge exceeded $100 million; the share of imports from the foreign trading partners responsible for the surge exceeded 10%. Naturally, we checked if the qualitative findings that follow are sensitive to the thresholds used in the above filters – and they aren’t. This method enables us to identify how many import surges into the US happen each year, the share of US manufactured imports affected by import surges each year, the trading partners ‘responsible’ for these import surges, and the sectors where such import surges happen. US import surges are rare and are getting rarer over time The dataset we employ breaks US manufactured imports into 4,152 product categories. The four filters outlined above identified 1,710 instances where surges of imported manufactured goods occurred during 2006-16, an average of 155 surges per year. Figure 1 shows what percentage of products face an import surge each year between 2006 and 2016 and what percentage of total US manufactured imports are in products witnessing an import surge. Import surges of manufactured goods peaked in the chaos of the 2009 collapse in world trade. In that year, 216 manufacturing product categories witnessed import surges. Still, in that year there was only a one-in-19 chance that a manufactured good category was involved in an import surge. In 2009, less than 10% of the value of US manufactured goods imports were in product categories facing import surges. Since 2009, the frequency and imports affected by surges has fallen markedly. During the last three years of our sample, 2014-6, each manufacturing goods category had a one-in-32 chance of being involved in an import surge. Import surges had become so rare that less than 5% of manufactured goods imports into the US were implicated. If billion US dollar-plus import surges grab headlines, then in recent years these were found in products accounting for less than 3% of US manufacturing goods imports. By 2016 less than a tenth of US imports affected by surges came from China Having reviewed our dataset of 1,710 import surges, Canada, China, and Mexico stand out as the US trading partners responsible for plenty of import surges. Figure 2 shows the varying contributions of these three nations over time and the rest of the world. Given the Trump administration’s concerns about Chinese trading practices, the percentage of US manufactured imports involving surges where China is responsible is also reported. What is striking is how China’s contribution to US import surges diminishes sharply after 2011. By 2016, the latest year available, import surges originating in China accounted for just 10.8% of the US manufactured imports witnessing sharp rises in imports. As far as import surges are concerned, the ‘China shock’ peaked in 2010 and lost much of its force since then. Canada and Mexico’s contribution waxes and wanes considerably with possible implications for the Trump administration’s negotiating stance in the NAFTA renegotiation. Severe Chinese excess capacity sectors are not responsible for many US import surges During 2015 and 2016, trade policymakers frequently claimed that excess capacity in Chinese manufacturing disrupted global commerce and stoked trade frictions. Excess capacity became so contentious that it was discussed at G20 meetings and featured in the communiqués issued after the two latest Leaders’ Summits. To evaluate these concerns, we calculated the percentage of US manufactured imports that are in product categories in those sectors where China has acknowledged it has a severe excess capacity problem. Note not every product category in a given sector saw import surges into the US. If the cross-border spillovers created by Chinese excess capacity are as severe as some claim, then we should not confine our calculations to import surges originating from China. Instead, we included in our calculations import surges from any source in product categories associated with a sector known to have excess capacity in China. But which sectors have severe excess capacity in China? In 2013, the Chinese State Council issued a Guiding Opinion on Eliminating Severe Excess Capacities in which it singled out the steel, aluminium, flat glass, cement, and shipbuilding sectors as suffering from severe excess capacity. We matched these sectors as best we could to the United Nations sectoral CPC categories2. Figure 3 reports the percentage of US manufacturing imports facing import surges in the five sectors where China has severe excess capacity. Contrary to much G20 discussion, the product lines where US import surges tend to happen are not in the sectors where China acknowledged it has a severe excess capacity problem. Less than 12.5% of US manufacturing imports associated with import surges are found in the steel, glass, cement, shipbuilding, and aluminium sectors3. That is not to say that within these sectors Chinese excess capacity has not created problems for trading partners, but too few import surges into the US occur in these sectors. The systemic impact of Chinese excess capacity has probably been exaggerated. Implications for policymakers and analysts Import surges into the US manufacturing sector occur too infrequently and implicate too little trade as to constitute a far-reaching distortion to the US’ international commerce. The ‘China shock’ and in particular excess capacity in Chinese manufacturing do not account for much of the US trade subject to import surges. Three policy implications follow from this analysis: Import surges into the US economy are so rare that they should not be used to provide a pretext for across-the-board trade restrictions. Given import surges originating in China account for less and less US imports, it is difficult to support a critique of Chinese policy on this basis. The G20 needs to rethink whether and how excess capacity creates harmful trade spillovers. Some defenders of the tough US regime of import enforcement might react to these findings by arguing that import surges are so rare because of this regime’s deterrent effect. We repeated this analysis for a high-income nation with a share of manufacturing in GDP that is much larger than the US, which has no antidumping, anti-subsidy, or safeguard regime. Other than the years where its currency spiked, import surges into Switzerland differ little in scale and frequency to the US. For analysts these computations raise several questions. Is there a better way to identify import surges, in particular from readily available United Nations data on trade values? Should our approach to identification have merit, compared to the number of import surges we find why do US firms petition for so few safeguard investigations each year? What accounts for the intertemporal and cross-sectional variation in the number of import surges? And which, if any, mechanisms by which sectoral excess capacity generate import surges and trade frictions have explanatory power? This article was originally published on Voxeu.org Endnotes 1. We use import data for the six-digit level of the Harmonised System in its 2012 vintage. Where necessary, data flows have been converted from earlier vintages into 2012 as described in the GTA handbook. For the sectoral analysis, the HS data has been aggregated to the 3-digit level of CPC version 2.1 based on the correspondence provided by the UN Statistics Division. To focus on US manufacturing imports, all HS codes relating to CPC codes of chapter 01-24 as well as petroleum and its products (CPC chapter 33) plus precious metals (CPC sub-chapter 413) have been removed. 2. Arguably, our matching here overstates the amount of US imports found to be affected by import surges where China has severe excess capacity because the Chinese government document specified a product category that is narrower than the sectoral label. For instance, the Guiding Opinion mentions flat glass which we paired with the broader CPC category glass and glass products. 3. Widening the range of sectors to those occasionally mentioned in Chinese state documents does not alter the qualitative finding here. References Bown, C (2017) “Solar and Washing Machine Safeguards in Context: The History of Section 201 Use”, Peterson Institute. Lighthizer, R (2018), “President Trump Approves Relief for U.S. Washing Machine and Solar Cell Manufacturers”, press release.
Some defenders of the tough US regime of import enforcement might react to these findings by arguing that import surges are so rare because of this regime’s deterrent effect

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