(The Global Economist) Vietnam keeps anti-dumping duty on aluminium originating from China

Vietnam on Tuesday decided to keep anti-dumping duty on aluminum from China.

 

The Ministry of Industry and Trade has decided to continue imposing anti-dumping duties on certain aluminum products originating from China with a tax rate from 4.39 per cent to 35.58 per cent after carrying out the first review, reported VietNam News.

 

Earlier on September 28 last year, the Ministry had issued a decision to impose anti-dumping duties on some aluminum products originating from China with a rate from 2.49 per cent to 35.58 per cent. The Ministry initiated the investigation into the anti-dumping case in January 2019 and found that it has hit the domestic aluminum industry.

 

Specifically, most domestic producers suffered losses, many production lines had to stop operating and a large number of workers lost jobs due to dumping of aluminum products originating from China at margins of 2.49 per cent to 35.58 per cent, reported VietNam News.

 

In mid-2020, the Ministry received an inquiry to conduct the first review on anti-dumping duties on Chinese aluminum products.After the review, the ministry issued a decision on April 20 this year which took effect five days later to continue levying anti-dumping duty on some aluminum products originating from China, reported VietNam News.

 

On the same day, the ministry also issued a decision after carrying out the first review about the imposition of anti-dumping duty on some painted flat-rolled alloy and non-alloy steel products originating from China and the Republic of Korea.

 

Accordingly, the anti-dumping duties of 2.56 per cent to 34.27 percent were imposed, reported VietNam

News.

Dumping is when products are sold at a price lower than cost of production in international markets, while Anti-Dumping duties are a form of protectionist tariff - custom duty or tax on imported products, to ultimately protect local producers exemplifying interdependence of local producers and foreign imports, and how changes in either, affect the other.

In Figure 1, the world price for aluminum is determined in the world market at P1, which is lower than the price of Vietnam's domestic aluminum market, P. Veitnams accepts the lower world price P1, reducing the domestic quantity supplied to Q1, however at P1, a higher quantity is demanded Q2, following the laws of supply and demand respectively. Since Q2 > Q1, Vietnam has had excess quantity demanded, which is then imported from foreign countries. Hence the amount of steel imported is (Q2 - Q1).

 

A low world price and limited domestic supply and demand for aluminum is linked to China’s alleged dumping practices - consumers are incentivized to buy aluminum at the significantly lower prices offered by China, which domestic producers cannot viably compete with, showing how both are interdependent. Post investigation of an anti-dumping case was introduced on aluminum imports from china, ranging from 4.39 to 35.58 per cent.

The imposition of tariff pushes the price of Chinese aluminum imports to P2 at the world supply + tariff curve, reducing quantity supplied to Q3. The domestic price of aluminum rises to P2, as it accepts the higher world price, which increases domestic supply from Q1 to Q2, reducing the amount of imports to (Q3-Q2) from (Q1-Q4). This represents how the price of imports and domestic production are interdependent, by representing how an increase in price leads to lower imports and hence higher domestic production.

 

The area of green rectangle ABCD represents the gain in government revenue, while triangles AEB and CDF represent net welfare loss, through subsequent decrease in consumer surplus at Q3, and increase in producer surplus by upwards shift of the world supply curve at Q3.

 

In the short run, by effect of the tariff domestic aluminum producers are better off, by the ability to sell a higher quantity. The increased demand also promotes domestic employment. The gain in government revenue can be used to provide subsidies to worse hit groups to alleviate pressure from China’s alleged dumping prices.

 

Domestic consumers however face higher prices for aluminum making them worse off, considering aluminum input industries, this adversely affects GDP, employment and the price level. This is because as costs of production rise in the aluminum input industry, the SRAS decreases, causing cost-push inflation.

 

Decreased competition from imports may reduce the incentive of domestic producers to increase efficiency, negatively affecting consumers choice and development in the industry. In the long run, the domestic aluminum industry may become overly dependent on government help, and find itself severely under equipped to compete with foreign firms. There may be an decrease in international competitiveness of aluminum input products if they are an exporting good, due to higher prices.

 

On the other hand, dumping of aluminum to Vietnam may cause high unemployment and current account deficits, negatively affecting GDP and the price level. The tariff hence may be justified by protection of domestic employment or industries strategic to social or economic goals. Vietnam, still a developing country may wish to diversify by reducing their dependence on the specialization of a few primary commodities and may have newly established aluminum industries which need time to develop and establish economies of scale - the protection of such infant industries can be considered as a rational for the tariff.

 

However, the difficulty of proving whether China is dumping or has a natural cost advantage due to economies of scale or more efficient technology may lead to trade diversion as production moves away from more efficient producers in China to less efficient producers. Moreover, the assumption the tariff will reduce imports and benefit domestic producers may fail if the PED for imports from China is inelastic or if China routes its cheap aluminum to another nation and exports it to Vietnam from there.

 

In reality the effect on the aluminum input industry may not be as significant as firms are likely to find substitutes from other countries if costs of production significantly rise. Moreover, the tariff imposed is likely to be adjusted to avoid a large-scale trade war. The interdependence of price of imports and domestic production, highlights how stakeholders may manipulate events to avoid the ill effects of high import prices.

 

In conclusion, the imposition of the Chinese import tariff in the form of anti-dumping duties on aluminum, helps worse hit domestic producers, and allow growth in Vietnam's domestic aluminum industry, however, the negative effect on Vietnamese aluminum input consumers comes with a heavy opportunity cost to consider.

Tragakes, Ellie. Economics for the Ib Diploma Coursebook with Cambridge Elevate Edition. 3rd ed., S.L., Cambridge Univ Press, 2020. Pg 444-446