Antidumping and Product Quality
Caselli, M; Huang J, Tomasi, C; Zhu, M (2023) Antidumping and Product Quality, CITP Working Paper 008
Published 29 November 2023
We examine the export behaviour of Chinese firms, in particular firms' decision on product quality, in the face of product- and market-specific tariff shocks that arise when importers impose anti-dumping duties. Exploiting the time-varying trade policy changes from the Global Antidumping Database and transaction-level Chinese customs data between 2000 and 2015, we find that Chinese firms hit by anti-dumping duties tend to decrease not only the export flows but also the quality of the targeted products, while no significant effect is found for prices. We show that the results are robust to several sensitivity checks. The estimated impact of quality downgrading continues even after the measure is revoked and it is more pronounced for firms exporting to developing countries. Further results allow us to better understand the underlying mechanism.
Specifically, firms exposed to anti-dumping duties respond by importing input varieties with lower prices, which contributes to reduce the quality of their products. Back-of-the-envelope calculations show that countries imposing anti-dumping measures experience a 5.4% loss in consumer surplus for the targeted products.
The past three decades have witnessed significant changes in international trade, especially with the rise of temporary barriers such as antidumping, countervailing duties, and safeguard measures. Antidumping measures are particularly important as they are among the most widely used form of trade restriction. In practice, antidumping measures refer to duties imposed when the imported products of the targeted suppliers are deemed to be dumped and causing material injury to domestic import-competing industries (World Trade Organization Antidumping Agreement, Article 3). While the economic impact of antidumping on the firms directly protected by such measures has been well documented, less attention has been paid to the targeted suppliers.
In particular, the extent to which antidumping measures affect the quality of the targeted products from the perspective of exporters and the welfare implications of such measures from the point of view of the importing country remains poorly understood.
In this paper, we fill this gap by examining how the behaviour of Chinese firms changes when faced with antidumping duties. China is an excellent candidate for studying the impact of trade protection on firm performance. As the fastest-growing economy over the last 30 years, China has not only become the world’s largest exporter but has also been the target of a large number of antidumping measures. By merging data from the Global Antidumping Database and transaction-level Chinese customs data spanning 2000-2015, we assess the ramifications of antidumping on firms’ export decisions on, i.e., how much to export, pricing behaviour, and the quality of their export products.
We find that the use of contingent antidumping duties in one market leads to a significant reduction in export flows by Chinese firms serving that market. Moreover, these trade-restrictive antidumping measures have little-to-no impact on prices, indicating that duties are passed through to importers entirely, and Chinese firms are price takers in these markets.
In addition, we find that antidumping duties tend to have a hysteresis effect: even after they are revoked, their negative impact on quality continues. We further enrich the analysis by demonstrating that antidumping measures have a disproportionate effect on export quality depending on the destination. Specifically, we observe a pronounced quality downgrading of products exported to developing countries, while export quality adjustment is almost muted for products exported to higher-income countries. We then investigate the driving force behind the declining quality and find that reduced export revenues prevent Chinese firms from purchasing more expensive and higher-quality foreign-made inputs, leading to lower-quality exports. Our study highlights the importance of considering distortions in product quality, alongside the trade flows affected by antidumping measures, when quantifying the repercussions on both exporters and importers.
Finally, we calculate that antidumping measures decreased consumer surplus for the targeted products in the imposing countries by 5.4%. This result implies the unintended distortion associated with the imposition of antidumping measures that translate to welfare losses for consumers and downstream users in the protected countries.