Antidumping and USChina Bilateral IntraIndustry Trade: An Empirical Analysis

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Antidumping and US-China Bilateral Intra-Industry
Trade An Empirical Analysis
SCCS Economic Seminar, University of Nottingham,
May 14, 2009

• SHEN Guobing
• Associate Professor of World Economy
  International Finance
• (Institute of World Economy, Fudan University,
  200433)
• Homepagehttp//web.cenet.org.cn/web/economysoul
• E-mail guobingshen_at_yahoo.com.cn

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Antidumping and US-China Bilateral Intra-Industry
Trade An Empirical Analysis

• Abstract Focusing on the relation between
  antidumping (AD) and U.S.-China bilateral
  intra-industry trade (IIT), this paper uses the
  GL index and the binary logit model, and gets
  some valuable findings. In detail, the twenty
  goods groups, involved into the large friction
  tension of U.S. AD against China, have rather
  small indices of intra-industry trade during
  19952006, from which the U.S. suffer quite large
  imbalance of trade deficit. These are the true
  reasons that the U.S. takes frequently AD
  investigations and definitive measures against
  China. In addition, this paper proves empirically
  that there is no positive relation between AD
  density and U.S.-China bilateral IIT. The
  conclusion is that the goods groups with rather
  small indices of U.S.-China bilateral IIT and
  quite large imbalance of trade deficit are
  easiest to cause the U.S. AD actions against
  China.
• Keywords Antidumping, Intra-industry Trade, GL
  index

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• 1. Introduction
• Intra-industry trade refers to the international
  or inter-regional trade of products and
  semi-finished products belonging to the same
  industry. In reality, the Sino-US product trade
  has formed the international differentiation and
  refinement with the increase of Chinas export to
  US 1. However, because of the differences of
  production scales, products and consumer
  preferences between China and US, intra-industry
  trade has developed continuously in some
  industries, such as the chemicals industry.
• 1According to the data reported by China in the
  UN trade statistic database, in 1995, the amount
  of Chinas import from US was 16.12 billion USD,
  and the amount of Chinas export to US was 24.73
  billion USD but in 2001, they had increased to
  26.22 billion and 54.36 billion, respectively.
  After joining WTO, the amount of Chinas import
  and export have increased quickly. In 2006, the
  amount of Chinas import from US was 59.31
  billion USD, and the amount of Chinas export to
  US was 203.80 billion USD. According to the data
  reported by US, the amount of Chinas import and
  export had increased much more. In 2006, the
  amount of USs import from China was 305.78
  billion USD, and the amount of USs export to
  China was 55.22 billion USD. Cite in July, 2007.

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• According to the data reported by China in the UN
  trade statistic database, it can be calculated
  that the GL index 1 of Sino-US chemicals
  intra-industry trade had risen from 0.47 in 1995
  to 0.81 in 2006. According to the data reported
  by US, the GL index had risen from 0.64 in 1995
  to 0.94 in 2006. That is to say, Sino-US
  chemicals intra-industry trade is larger form the
  perspective of US, which means the competition
  between China and US in chemicals industry is
  becoming fiercer.
• During 1995 to 2006, say, after the establishment
  of WTO, US or China AD investigations and AD
  definitive measures to the counterpart mainly
  concentrated on chemicals products.
• 1the GL index of intra-industry trade was
  introduced by Grubel and Lloyd (1975).

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• The questions are is the density of antidumping
  positively related to Sino-US bilateral
  intra-industry trade? If not, what is the
  relation between antidumping and Sino-US
  bilateral intra-industry trade?
• (1) Research on the intra-industry trade measure.
  Grubel and Lloyd (1975) originally introduced the
  intra-industry trade GL index
• Where Xj and Mj denote the export and import of
  the jth industry, GLj denotes the intra-industry
  trade of the jth industry to measure the balance
  or overlap of intra-industry trade.

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• (2) Research on the industry trade and
  antidumping.
• Blonigen Bown (2003)think that an industry is
  more likely to file an AD petition the greater
  the import penetration and the lower its
  exposure to retaliation. The industry is more
  exposed to retaliation when the industry has
  significant exports to the same country it is
  petitioning against and when that country has AD
  policies in place.
• Stevenson (2007) As Chinese imports of these
  sensitive products increase, it is possible that
  domestic industries will turn to anti-dumping
  where prices are low and there have been
  significant increases in imports.

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• 2. The distribution of Chinese industrial
  products anti-dumped by US
• In the early years of reform and opening-up
  (1978-1981), there was little antidumping lawsuit
  filed by US against China until 1980, which saw
  the first AD investigation against China, the
  menthol incident. But the AD investigations and
  AD definitive measures increased later on, while
  the distribution of involved industrial products
  expanded.
• During 1978 to 1990, 7 industrial products were
  involved in US AD investigation against China
  chemicals products, textile fabrics, food, base
  metals products, mineral manufactures,
  miscellaneous manufactures, and industrial/
  electrical equipment. In 1991, transport
  equipment was involved. In 2000, mineral fuels
  were involved. In 2003, household appliance was
  involved. In 2004, paper articles were involved.
  As a result, 11 industrial products were involved
  in US AD investigation against China during 1978
  to 2005.

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• In 1983, US gave the first verdict of AD
  definitive measure against China, the greige
  polyester cotton cloth incident and the cotton
  shop towels incident. During 1984 to 1996 US
  verdicts of AD definitive measure against China
  involved 7 industrial products. In 1997,
  transport equipment was involved. In 2001,
  mineral fuels were involved. In 2004, household
  electric appliance was involved. In 2005, paper
  was involved. As a result, 11 industrial products
  were involved in US AD definitive measure against
  China.
• Specifically, chemicals products and base metals
  products were the most important industrial
  products of US AD investigations and AD
  definitive measures against China.

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• During 1978 to 2005, there are 38 AD
  investigation and 26 AD definitive measures to
  chemicals products, which occupied 32 of US AD
  investigation against China and 34 of US AD
  definitive measures against China, respectively.
  During the same period, there are 32 AD
  investigation and 22 AD definitive measures to
  base metals products , which occupied 27 of US
  AD investigation against China and 29 of US AD
  definitive measures against China, respectively.
  Furthermore, these numbers are increasing
  quickly.
• In general, we can sort the industrial products
  which US anti-dumped against China during 1978 to
  2005 as follows chemicals products, base metals
  products, miscellaneous manufactures, food,
  mineral manufactures, industrial/ electrical
  equipment, transport equipment, textile fabrics,
  paper articles, mineral fuels and household
  appliance.

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Table 1 The distribution of industrial products
involved in US AD investigation and AD definitive
measures against China
Source http//people.brandeis.edu/cbown/global_a
d/http//www.wto.org/english/tratop_e/adp_e/adp_e
.htmstatistics
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3. The main products and amount involved in US
antidumping cases against China

• We inspect the main products involved in US
  antidumping cases against China after the
  establishment of WTO in detail based on the
  amount involved in the cases. USITC (2006)
  statistics shows the main products involved in US
  antidumping cases against China whose amount is
  more than 100 million USD during the fiscal year
  1995-2006. See Table 2 for reference.
• Wooden bedroom furniture involved amount 957.95
  million USD, ruled 198.08 antidumping tax
• Carbon and certain alloy steel wire rod involved
  amount 340.88 million USD, but preliminary ruling
  was rejected
• Certain frozen and canned warmwater shrimp and
  prawns involved amount 295.30 million USD, ruled
  112.81 antidumping tax
• Color television receivers involved amount
  271.11 million USD, ruled 78.45 antidumping tax
• Bicycles involved amount 221.30 million USD, but
  ruled as no damage
• Grid paper involved amount 131.84 million USD,
  ruled 78.39 antidumping tax
• Ball bearings involved amount 127.96 million
  USD, but ruled as no damage
• Polyethylene retail carrier bags involved amount
  125.72 million USD, ruled 77.57 antidumping tax.

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Table 2 Main products and amount involved in US
antidumping cases against China (million USD)
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Table 2 Main products and amount involved in US
antidumping cases against China (million USD)
Resource http//people.brandeis.edu/cbown/global
_ad/http//www.usitc.gov/trade_remedy/Report-10-0
6-PUB.pdf.
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• In order to reveal the possible relation between
  antidumping and Sino-US bilateral intra-industry
  trade, we omit the products which were ruled as
  no damage or suspended the agreements to obtain
  the main products which US ruled antidumping tax
  on China
• Wooden bedroom furniture, certain frozen and
  canned warm water shrimp and prawns, color
  television receivers, grid paper, polyethylene
  retail carrier bags, canned mushrooms, carbon
  steel standard pipe, automotive replacement glass
  windshields, certain brake drums and rotors,
  crawfish tail meat, pure magnesium, non-frozen
  apple juice concentrate, certain tissue paper
  products, honey, malleable iron pipe fittings,
  refined brown aluminum oxide, synthetic indigo,
  foundry coke, ironing tables and certain parts
  thereof, polyvinyl alcohol, etc.
• Then we can calculate the Sino-US bilateral
  intra-industry trade of the main products
  involved in antidumping cases to reveal the
  possible relation between antidumping and Sino-US
  bilateral intra-industry trade.

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4. The bilateral intra-industry trade of the main
products involved in US antidumping cases against
China

• Grubel and Lloyd (1975) originally introduced the
  intra-industry trade GL index
• Where Xj and Mj denote the export and import of
  the jth industry, GLj denotes the intra-industry
  trade of the jth industry to measure the balance
  or overlap of intra-industry trade. GL index is
  between 0 to 1. GL0 means no intra-industry
  trade and totally unbalanced trade GL1 means
  totally intra-industry trade and bilateral
  balanced trade.
• Hence, GL index is positively related with the
  balance of intra-industry trade and negatively
  related with the friction of bilateral trade.

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• Now we calculate the intra-industry trade GL
  index of the products involved in US antidumping
  cases against China to consider which product has
  larger antidumping friction. See Table 3 for
  reference.

• Table 3 The intra-industry GL indices of main
  products involved in US antidumping cases against
  China (see the next page)

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Resource UN trade statistic database
http//comtrade.un.org/db, calculate by the data
reported by US. Published in August, 2007.
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• From the table above we can see that the 20
  products involved in US antidumping cases against
  China during 1995 to 2006 with large antidumping
  friction have small intra-industry trade GL index
  and make large trade deficit of US. That is the
  reason why there are continuous trade dispute
  launched by US against China.
• It denies the positive relation between the
  density of antidumping and Sino-US bilateral
  intra-industry trade, but the conclusion should
  be testified econometrically.

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5. The relation between antidumping and Sino-US
bilateral intra-industry trade empirical analysis

• Theoretically, there are two kinds of antidumping
  from the perspective of Sino-US bilateral
  intra-industry trade
• (1) When bilateral intra-industry trade is large,
  if US launches antidumping, China will retaliate
  by antidumping, so the dominant strategy is both
  side do not launch antidumping.
• (2) When bilateral intra-industry trade is small,
  the dominant side usually tends to launch
  antidumping, so US usually launches antidumping
  against China using its dominant strategy formed
  by trade deficit.
• According to the result of game theory,
  antidumping usually occurs when bilateral
  intra-industry trade is small and one side has
  dominant strategy formed by trade deficit.

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• However, the intuitive description is limited to
  representation, so we choose the period 1995 to
  2006 as a sample to inspect the internal relation
  between intra-industry trade and antidumping
  cases.
• (1) Variables chosen and data description
• A. The products involved in antidumping cases
• We define a binary variable ADj to equal 1 if US
  launched antidumping of the jth product against
  China and 0 if otherwise. See Table 4 to get
  variable ADj of all involved products.

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• B. The intra-industry trade of the involved
  products
• Because the GL index of a particular
  intra-industry trade product has no distort of
  numerical offset induced by totaling, we can
  measure the intra-industry trade of the involved
  products by applying GL index directly.
• Theoretically, antidumping usually occurs when
  bilateral intra-industry trade is small. GLjt
  denotes the jth product which US has
  intra-industry trade with China in year t.
• C. The trade balance of involved products
• The intra-industry trade can only reflect the
  trade balance between US and China, but cannot
  reflect whether US has antidumping dominant
  strategy, so we need to consider the trade
  deficit between US and China. Theoretically, the
  products with small intra-industry trade and US
  trade deficit tend to induce antidumping.

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• (2) Modeling and empirical results analysis
• Because the independent variable has only two
  choices 0 when no antidumping occurs, 1 when
  antidumping occurs, we use a binary choice model,
  and choose the main products involved in US
  antidumping cases against China to testify the
  proposition. Specifically, the binary choice
  model can write as
• Where ADjt equals 0 or 1, GLjt denotes the
  Sino-US intra-industry trade of the jth product
  in year t, NXjt denotes the US trade deficit of
  the jth product in year t, ß0, ß1, ß2 are
  coefficients, µjt is error term.
• According to the binary choice model, we choose
  1996-2006 as a sample period and choose whether
  US anti-dumped the jth product against China as
  an independent variable. The model and the
  independent variables are chosen as above. When
  estimating the impact of Sino-US intra-industry
  trade of the involved products and trade deficit
  to induce antidumping, we choose between data of
  this period and data of lagged q period (q1, 2,
  ) according to the significance of variables as
  well as the principle of minimized AIC, SC and
  maximized log-likelihood. The best test result of
  the binary choice model is as follows

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Table 5 Regression result of the binary Logit
model of main products involved in US antidumping
cases against China
Note significant at the 5 significance
level, significant at the 10 significance
level. Data resource see variables chosen and
data description for reference.
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• According to Table 5, we use Logit model
  defaulted by Eviews. Because the coefficient of
  the constant term is not significant, we omit it
  and obtain a binary Logit model without the
  constant term.
• We also consider the possible lagged impact of
  Sino-US intra-industry trade of the involved
  products and trade deficit in the sample period
  to induce antidumping. Compare the significance
  of variables, minimized AIC, SC and maximized
  log-likelihood. Use the intra-industry trade GL
  index of involved products of 2-period lag. Use
  the trade deficit of this period.
• At the significance levels of 5 and 10, the two
  independent variables have statistically
  significant effects on the dependent variable.

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• At the 5 significance level, assuming other
  conditions remain unchanged, the probability that
  US launch antidumping to the jth product against
  China is negatively related with the US trade
  deficit with China. So it is testified that the
  products with trade deficit tend to induce the
  antidumping of US.
• At the 10 significance level, assuming other
  conditions remain unchanged, the probability that
  US launch antidumping to the jth product against
  China is negatively related with the US
  intra-industry trade with China. However, the
  effect lags 2 periods.
• So we deny the positive relation between the
  density of antidumping and Sino-US bilateral
  intra-industry trade empirically furthermore, we
  testify that the small Sino-US bilateral
  intra-industry trade induce the frequent
  antidumping by US against China in the sample
  period.

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6. Main conclusions and suggestions

• We obtain the following main conclusions from the
  empirical analysis of antidumping and Sino-US
  bilateral intra-industry trade
• We can sort the industrial products which US
  anti-dumped against China as follows chemicals,
  (cheap) manufactures of metals, commodities and
  transactions not classified elsewhere in SITC,
  food, mineral manufactures, machinery and
  electrical equipment, transport equipment,
  textile, paper, mineral fuels and household
  electric appliance.
• In the fiscal year 1995-2006 the main products
  involved in US antidumping cases against China
  whose amount is more than 100 million USD
  werewooden bedroom furniture, carbon and certain
  alloy steel wire rod, certain frozen and canned
  warmwater shrimp and prawns, color television
  receivers, bicycles, grid paper, ball bearings,
  polyethylene retail carrier bags. Other 26
  products had involved amount of more than 10
  million USD and less than 100 million USD. But a
  part of the products were ruled as no damage or
  suspended the agreements, such as , carbon and
  certain alloy steel wire rod, bicycles and ball
  bearings.

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• The 20 products involved in US antidumping cases
  against China during 1995 to 2006 with large
  antidumping friction have small intra-industry
  trade GL index and make large trade deficit of
  US. That is the reason why there are continuous
  trade dispute launched by US against China.
• The regression of the binaryl Logit model shows
  that at the 5 significance levels, the
  probability that US launch antidumping to the jth
  product against China is negatively related with
  the US trade deficit with China at the 10
  significance levels, the probability that US
  launch antidumping to the jth product against
  China is negatively related with the US
  intra-industry trade with China. So we deny the
  positive relation between the density of
  antidumping and Sino-US bilateral intra-industry
  trade empirically.
• Conclusion the products with small bilateral
  intra-industry trade and US trade deficit tend to
  induce US antidumping against China.

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Suggestions

• To increase the quality and value-added of the
  products exported to US by technology transfer
  and industry upgrading. Increase import and
  export of the same products at the same time to
  increase the Sino-US bilateral intra-industry
  trade so as to reduce the risk of antidumping
  partially.
• To improve Sino-US merchandise trade structure by
  taxing on the products produced by
  resource-depleting or environment-polluting
  enterprises. Reduce the export of the products to
  US to reduce the huge trade deficit of US on the
  products so as to reduce the possible antidumping.

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References

• Blonigen, Bruce and Bown, Chad. Antidumping and
  Retaliation Threats J. Journal of International
  Economics, 2003, 60 249-273.
• Grubel, Herbert and Lloyd, Peter (1975),
  Intra-Industry Trade the Theory and the
  Measurement of International Trade in
  Differentiated Products, London Macmillan.
• Shen Guobing (2007),Revealed Comparative
  Advantages, Intra-Industry Trade, and Sino-U.S.
  Bilateral Trade Balance(in Chinese), Management
  World 2, pp.5-16.
• Shen Guobing (2008),Antidumping and U.S.-China
  Bilateral Intra-Industry Trade An Empirical
  Analysis(in Chinese), World Economy Study 3,
  pp.48-55.
• Stevenson, Cliff. Global Trade Protection Report
  2007 Data Analysis R. 2007 1-20,
  www.antidumpingpublishing.com.
• USITC (2006), Import Injury Investigations
  Historical Case Statistics (FY 1980-2005),
  pp.13-24, http//www.usitc.gov.

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• Thanks a lot!