This paper reviews economic developments in the United States during 1992–96. The paper briefly describes improvements in the national income and product accounts (NIPA) and some of their implications for the analysis of long-term trends in U.S. investment and saving. The paper highlights that the effect of the 1990–92 recession on employment was considerably less severe than the effect of the 1981–82 recession. During the 1990–92 recession, employment fell by 1½ percent, compared with a drop of 3 percent during the 1981–82 recession.

Abstract

This paper reviews economic developments in the United States during 1992–96. The paper briefly describes improvements in the national income and product accounts (NIPA) and some of their implications for the analysis of long-term trends in U.S. investment and saving. The paper highlights that the effect of the 1990–92 recession on employment was considerably less severe than the effect of the 1981–82 recession. During the 1990–92 recession, employment fell by 1½ percent, compared with a drop of 3 percent during the 1981–82 recession.

VII. Macroeconomic Conditions and Pressures for Protection

1. Introduction

Over the last two decades, new trade restrictions have been introduced in many industrial countries principally through administrative channels. These include antidumping duties (AD), countervailing duties (CVD), voluntary export restraint agreements (VERs), and so-called “safeguard” actions. 1/ This development reflects the constraints placed on the use of quantitative restrictions and tariff barriers under GATT (now World Trade Organization (WTO)) rules. With the exception of VERs, 2/ these procedures are governed by specific rules and, thus, might be expected to be less susceptible to pressures for protection from foreign competition arising from cyclical movements in a country’s economy. The purpose of this study is to investigate whether there is a connection between the state of domestic macroeconomic activity and pressures for protection under AD/CVD, in order to better understand the ebb and flow of these actions over time. Because of the ready availability of data on AD/CVD petitions and the body of empirical work done on similar questions, data from the United States is used. Of course, the kind of relationship tested for here probably is not specific to the United States, and this analysis could be usefully applied to other countries.

2. Use of administered trade actions

In a frequently cited study, Takacs (1981) investigated the extent to which pressures for administered protection in the United States, as measured by the number of yearly petitions for escape-clause (also called safeguard) protection, responded to developments in the macroeconomic cycle. Her empirical results indicated that the pressure for administered protection was inversely related to the level of macroeconomic activity (as measured by the unemployment rate or the rate of industrial capacity utilization). Takacs’ focus on escape-clause protection was not apparently determined a priori, as she observed that “preliminary empirical tests using antidumping and countervailing duty cases in addition to escape clause cases failed to provide significant results” (p. 688). 1/ Coughlin et al. (1989) corroborated the results of Takacs’ study using a number of alternative model specifications. Salvatore (1987), using a simultaneous equations model, found that macroeconomic activity, as measured by the level of real GNP, affected escape clause petitions, but he did not find a significant relationship when alternative indicators of economic activity (the unemployment rate and capacity utilization) were used. Magee and Young (1987) examined the proportion of yearly antidumping petitions that received an affirmative ruling during the years 1954-1981 and found evidence that antidumping protection was more likely to be granted following a petition during macroeconomic downturns.

Under the Trade Agreements Act of 1979 (which implemented the results of the Tokyo Round of multilateral trade negotiations), a number of significant changes were introduced affecting the way AD/CVD cases are handled in the United States. 2/ Subsequently, AD/CVD petitions and actions increased significantly in the 1980s. 3/ At the same time, safeguard petitions and actions waned, suggesting a possible high degree of substitutability between AD/CVD and safeguards. 4/

Unlike escape-clause protection, antidumping and countervail are intended to target so-called “unfair” trading practices: either “dumping” or subsidization. Thus, in addition to the injury criterion, 1/ which is also necessary to obtain protection under the escape clause, antidumping and countervail also require a demonstration of dumping and subsidization, respectively. 2/ As suggested by Finger and Murray (1993, p. 241 and p. 247), however, when AD/CVD petitions fail to result in a final duty in the United States, it is generally because the injury test is negative. 3/ This suggests that given sufficient flexibility in the way in which dumping margins 4/ and subsidies are calculated, AD/CVD cases can be considered roughly comparable to safeguard actions, in the sense that the outcome effectively hinges on the injury decision. In such circumstances, the relationship between macroeconomic fluctuations and pressures for escape-clause protection identified by Takacs would be expected to carry over to antidumping and countervail petitions. However, care has to be taken in extending this analysis to AD/CVD cases and in interpreting the results. It is possible that inasmuch as there is a degree of synchronization in the timing of downturns between the domestic and foreign economies, such a relationship might reflect a rise in the propensity of foreign producers to actually “dump” goods, or of foreign governments to grant new subsidies.

3. Empirical tests

The measure of protectionist pressures under AD/CVD used in the analysis is the yearly number of petitions for protection as reported by the Office of the United States Trade Representative (USTR). 5/ The sum of all AD and CVD petitions is treated as the basic dependent variable (although AD and CVD petitions were also examined separately as dependent variables and these results are presented in the appendix tables). Since the Tokyo Round of multilateral trade negotiations (the period 1980-95), there were 752 antidumping and 407 countervailing duty petitions filed in the United States. 1/

The analysis focuses on “petitions” rather than final “actions” because focusing on final actions could understate underlying protectionist effects for several reasons. First, during the post-Tokyo Round period, AD/CVD cases were frequently withdrawn because a settlement was reached, whereby foreign producers would “voluntarily” restrain exports. 2/ Second, there is a large and growing literature on the trade-inhibiting effects of AD/CVD threats. 3/ This literature applies standard models of firm behavior under imperfect competition to an environment altered by AD/CVD rules. It suggests that petitions for AD/CVD protection could be used strategically to intimidate foreign exporters, and as such no duty need be imposed and no formal VER need be negotiated to induce trade-inhibiting effects. Third, the lag between filing a petition and its ultimate disposition is generally long (typically more than a year) and variable.

Two indicators of macroeconomic activity are considered in the analysis: the civilian unemployment rate and the rate of industrial capacity utilization. Many of the regression results reported below also control for exchange-rate developments by including measures of the real effective exchange rate (REER) of the dollar. Testing for the effect of REER movements on AD/CVD petitions was deemed particularly relevant in view of an opinion expressed by the USTR that the surge in AD cases from 1981-85 was due in large part to “the dollar’s high value.” 1/ To control for effects that might be induced by aggregate trade developments, the role of import penetration is also investigated using the ratio of imports to GDP; alternatively, the merchandise trade balance relative to GDP is included. Also, as mentioned previously, there may be a strong correlation between macroeconomic downturns in the United States and downturns among trading partners. Because such external factors could induce petitions for reasons unrelated to domestic macroeconomic conditions, results are also reported controlling for the macroeconomic conditions in major trading partner countries (as measured by their unemployment rates). 2/ Chart 1 displays the time series for unemployment and AD/CVD petitions over the sample period. 3/

Chart 1
Chart 1

UNITED STATES: UNEMPLOYMENT RATE AND AD/CVD PETITIONS

Citation: IMF Staff Country Reports 1996, 093; 10.5089/9781451839487.002.A007

Sources: Annual Report of the President of the United States on the Trade Agreement Programs (various Issues); Annual Report of the U.S. International Trade Commission; Import Administration Database, U.S. Department of Commerce; and Bureau of Labor Statistics, U.S. Department of Labor.

The basic equation posits an inverse relationship between domestic macroeconomic activity and pressures for protection under antidumping and countervail, with causality running from the general state of the economy to protectionist pressures. 4/ Lagged petitions are also included as an explanatory variable in order to capture what might be described as a depletion effect. Specifically, a relatively high number of petitions in one year would, other things equal, partially deplete the stock of potential petitions in the following year. This is because the stock of petitioners is finite and because many of the previous year’s petitions will remain under investigation during the following year. If, for example, the steel sector registered widespread petitions for protection in the current year, the entire sector would be eliminated as potential petitioners during the following year (since the investigation process typically lasts about a year), thus lowering the expected value of petitions in that year, other things equal. Conversely, relatively low petition activity this year might be expected to raise petitions in the following year because the stock of potential petitioners would be less depleted than otherwise. Augmented Dickey-Fuller tests indicated that the presence of a unit root could not be rejected for any of the variables considered, but these tests also suggested all series were stationary in first differences (Table A1). Accordingly, all equations were estimated in first differences.

Over the period 1980-95, the estimated regressions (Table 1) indicate that the number of AD/CVD petitions responded, in a statistically significant way, to the state of domestic macroeconomic activity. Other things equal, fewer antidumping and countervailing duty cases were initiated when the unemployment rate was low and the rate of capacity utilization was high. 1/ For example, the first equation in Table 1 suggests that a one percentage point increase in the unemployment rate would result in an additional 54 AD/CVD petitions in the first year (in an expected value sense), with a steady-state increase of 31 additional petitions.

Table 1.

UNITED STATES: Dependent Variable: Total AD and CVD Petitions Per Year 1/

(Annual observations, 1960-93)

article image

OLS regressions performed on first-differences; a constant term was included. In no case was the constant term significantly different from zero. The t-statistics are in parenthesis below the estimated coefficients. Coefficients significantly different from zero at the 1 percent level are indicated by (**), and at the 5 percent level by (*), using a two-tailed test.

Excluding the United States.

The Breusch-Godfrey statistic tests for the presence of autocorrelation when there is a lagged dependent variable in the regression equation. The BG test statistic with one legged residual Is asymptotically distributed as chi-squared with 1 degree of freedom. In none of the cases examined here is the null hypothesis (H0: errors are serially uncorrected) rejected.

The inclusion of the real effective exchange rate does not alter this result; the estimated coefficient is always positive as expected, but this effect is statistically significant at the 5 percent level in just one of the specifications examined. 2/ While a real effective appreciation (depreciation) of the dollar appears to contribute to a rise (fall) in petitions, the effect of changes in macroeconomic activity persists when this effect is taken into account. It is noteworthy that, in the sample, changes in the REER appear to be associated more strongly with changes in the number of countervail petitions than with antidumping petitions (Tables A2 and A3).

The alternative indicator of overall macroeconomic activity (capacity utilization) yields essentially similar results. In the basic equation (Table 1, regression 3), a one percentage point increase in the rate of utilization is associated with about 16 fewer AD/CVD petitions in the first year, other things equal, and a steady-state decline of about nine petitions.

When the ratio of imports to GDP (import penetration in percent change, exclusive of military goods) is included in the standard model, the data continue to suggest a significant role for the unemployment rate in determining the number of AD/CVD petitions, despite a high degree of collinearity between import penetration and the unemployment rate. 3/ High (low) import-to-GDP ratios are strongly associated with high (low) levels of domestic aggregate economic activity. The estimated coefficient for import penetration is negative, indicating that higher levels of import penetration are associated with fewer AD/CVD petitions, but the estimated effect is not statistically significant. The negative sign is the opposite of what would be expected if domestic macroeconomic downturns tended to be associated with an across-the-board surge in dumped and subsidized imports. 1/

Because macroeconomic downturns (upturns) at home may be associated with downturns (upturns) in trading partner countries and because downturns could be associated with attempts to increase foreign market share through “dumping” and/or new subsidies, several reported regressions attempt to control for the effects of macroeconomic conditions in trading partner economies. 2/ When either a trade-weighted average foreign unemployment rate or the average unemployment rate in industrial countries excluding the United States were included as regressors along with the U.S. unemployment rate, the foreign indicator was not statistically significant. The coefficient on the U.S. unemployment rate, however, remained significant at the 5 percent level.

Events in world steel trade raise a qualifying note for interpreting these empirical results. The two peak episodes in AD/CVD petitioning activity occurred in 1982 and 1992. Both years had a particularly high number of petitions from producers of various steel products. 3/ These two years also corresponded to local peaks in the U.S. average yearly unemployment rate. The rise in steel AD/CVD petitions in 1992 is attributable to some extent to the expiration in March 1992 of the farreaching multilateral VERs in steel. The macroeconomic downturn probably added additional impetus to these AD/CVD petitions. Thus, it is unclear to what extent events specific to developments in steel trade might be influencing the estimated effects over all AD/CVD petitions. 4/

4. Concluding comments

The evidence presented here suggests that pressures for protection in the United States under AD/CVD since the Tokyo Round of multilateral trade talks have heightened during macroeconomic downturns and receded with higher levels of resource utilization. This relationship is robust to a variety of specifications of the basic model, including those controlling for real exchange rate movements, indicators of trading-partner economic activity, the state of the U.S. trade balance, and the degree of aggregate import penetration.

It is important to note that nothing in this analysis suggests that the U.S. application of AD/CVD measures is, or has been, inconsistent with GATT/WTO rules. Rather, the implication is that despite conformity with multilateral rules, protectionist pressures still ebb and flow with the state of the macroeconomy. It is quite possible that similar results would be found if this type of analysis were to be extended to other countries that, like the United States, have undertaken extensive liberalization commitments in the GATT/WTO.

APPENDIX

Table A1.

Unit Root Test Results

(Annual observations: 1980-95)

article image

Reject the null hypothesis of a unit root at 1 percent level of significance.

Reject the null hypothesis of a unit root at 5 percent level of significance.

Reject the null hypothesis of a unit root at 10 percent level of significance.

MacKinnon critical values for rejection of the hypothesis of a unit root. The ADF test equations contain no constant term and one lagged dependent variable.

Table A2.

UNITED STATES: Dependent Variable: Total CVD Petitions Per Year 1/

(Annual observations, 1980-95)

article image

OLS regressions performed on first-differences: a constant term was included. In no case was the constant term significantly different from zero. The t-statistics are in parenthesis below the estimated coefficients. Coefficients significantly different from zero at the one percent level are indicated by (**), and at the 5 percent level by (*), using a two-tailed test.

Excluding the United States.

The Breusch-Godfrey statistic teats for the presence of autocorrelation when there is a lagged dependent variable in the regression equation. The tests performed here used one lagged residual. The BO test statistic with one lagged residual is asymptotically distributed as chl-squared with 1 degree of freedom. In none of the cases examined here is the null hypothesis (H0: errors are serially uncorrelated) rejected.

Table A3.

UNITED STATES: Dependent Variable: Total AD Petitions Per Year 1/

(Annual observations, 1980-95)

article image

OLS regressions performed on first-differences: a constant term was included. In no case was the constant term significantly different from zero. The t-statistics are in parenthesis below the estimated coefficients. Coefficients significantly different from zero at the one percent level are indicated by (**), and at the 5 percent level by (*), using a two-tailed test.

Excluding the United States.

The Breusch-Godfrey statistic tests for the presence of autocorrelation when there is a lagged dependent variable in the regression equation. The tests performed here used one lagged residual. The BG test statistic with one lagged residual is asymptotically distributed as chi-squared with 1 degree of freedom. In none of the cases examined here is the null hypothesis (H0: errors are serially uncorrelated) rejected.

Table A4.

UNITED STATES: Petitions for Antidumping and Countervailing Duties in the United States: 1980-95 1/

article image

All observations are reported in the Annual Report of the President of the United States on the Trade Agreements Program, except AD petitions in 1980 and 1983. These two observations were obtained respectively from the Annual Report of the U.S. International Trade Commission (the number of AD investigations initiated) and a count of AD petitions for 1983 contained in the Department of Commerce (DOC), Import Administration, database on AD/CVD petitions maintained on the Worldwide Web.

It is noteworthy that there is a data discrepancy for the year 1988 in the published Annual Reports of the President. Specifically, both the 1989 and 1990 Annual Reports (pages 76 and 92, respectively) indicate there were 42 AD and 13 CVD petitions in 1988—these are the numbers used in the data set. Beginning with the 1991 Annual Report, however, these numbers changed without explanation to 78 AD and 24 CVD petitions. Unlike some macroeconomic variables which are updated over time, AD/CVD petitions would be known with certainty at the end of each year. This, combined with the fact that the originally-reported numbers are consistent with the DOC’s WEB database on AD/CVD petitions, led to the decision to use the numbers as originally reported in the Annual Report of the President.

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1/

The “escape clause” or “safeguard” procedures implement Article XIX of the General Agreement on Tariffs and Trade (GATT). Broadly, Article XIX allows member countries to impose trade measures, which otherwise would be inconsistent with their GATT (now WTO) obligations, in the event that a domestic industry is seriously injured by reason of imports.

2/

Future voluntary export restraint agreements were formally prohibited in Article 11 of the Uruguay Round Agreement on Safeguards. Before the implementation of the Uruguay Round agreement, the status of VERs in GATT law was unclear, and these were commonly described as “grey area” measures.

1/

In a follow-up study to Takacs (1981), Feigenbaum, Ortiz, and Willett (1985) evaluated the sensitivity of Takacs’ results to her econometric specification. They concluded that “while the empirical results continue to support the view that cyclical conditions and international trade position significantly influence protectionist pressures, they also indicate that estimates of the magnitude of the impact of these factors are quite sensitive to econometric specification” (p. 176).

2/

Prusa (1996, pp. 3-4) identifies a number of these changes including, the transfer of investigating authority from the Department of Treasury to the Department of Commerce, the use of so-called “best information available,” and reduced time limits on cases.

3/

Prusa (1996, pp. 3-4) points out that between 1958 and 1973, about 20-25 petitions were filed per year and the rejection rate was very high, with only between two to three cases per year resulting in duties. After 1979, AD petitions rose to about 45-50 cases per year, and the rejection rate dropped to about 50 percent.

4/

For example, Hansen and Prusa (1995) observe that from 1958 through 1979 there were 5.9 safeguard cases on average each year; from 1980 through 1991 the yearly average was just 1.7 cases. Hansen and Prusa conclude that protection under AD/CVD has become more popular because it offers relief from foreign competition comparable to safeguards, while being easier to obtain.

1/

A finding that the domestic industry is materially injured, or threatened with material injury, by reason of imports is a necessary condition for obtaining both preliminary and final AD/CVD duties. The “material injury” criterion applicable to antidumping and countervail is generally thought to establish a lower threshold of injury than the “serious injury” criterion applied to safeguards protection.

2/

The U.S. countervail regime required no injury test until 1974. During the post-Tokyo Round period, however, an injury test was applied in all cases involving duty-free goods, or in any case against signatories to the GATT Subsidies Code, Taiwan Province of China, and other countries to whom the United States had extended unconditional most favored nation status. See, e.g., Jackson (1989, pp. 257-61).

3/

The Congressional Budget Office (1994) also makes this observation. It is important to point out that unlike a negative preliminary injury ruling, a negative preliminary ruling on subsidization or dumping does not end the investigation process. Thus, as pointed out by Finger and Murray (p. 248), if the preliminary injury test is affirmative, an investigation might continue for another 205-420 days.

4/

A “dumping margin” is the estimated percent by which an exporter’s home-market price exceeds the export price for a comparable good.

5/

The 1996 Trade Policy Agenda and 1995 Annual Report of the President of the United States on the Trade Agreements Program reports yearly AD and CVD petitions from 1986-95. Earlier reports indicate yearly petitions from 1980. These numbers are reported in Table A4.

1/

A single petition corresponds to one product and one country. Thus, a case involving a single product and targeting, say, five exporting countries would constitute five petitions.

2/

Often such agreements are quite transparent as, for example, the multi-country steel VERs under the 1984 Steel Stabilization Program in the United States. But the visibility of all such arrangements negotiated under AD/CVD threats is not assured. Finger and Murray (1993, p. 246) surmised that about half (348 of 774) of all AD/CVD case between 1980-88 resulted in negotiated export restraints. Such arrangements were sufficiently troubling in the post-Tokyo Round period that Uruguay Round negotiations led to a general prohibition of all new VERs (Article 11 of the Uruguay Round Agreement on Safeguards).

3/

Bhagwati (1988), Messerlin (1989), and others have argued for some time that antidumping produces “harassment effects” on exporter behavior. Such effects have been modeled, for example, by Leidy and Hoekman (1990), Fischer (1992), Prusa (1992), Webb (1992), Staiger and Wolak (1994), Prusa (1994), and Leidy (1995).

1/

See, for example, USTR (1992, p. 79) where it is reported that “from 1981 through 1985, the dollar’s high value and major structural adjustments in international steel trade generated record numbers of antidumping cases.” This view also appeared in earlier reports (see, for example, The 1990 Trade Policy Agenda and the 1989 Annual Report, p. 75).

2/

The sample included the average yearly unemployment rates for the seven largest U.S. trading partners in terms of U.S. imports for the year 1990. These countries were Japan, Canada, Germany, Mexico, Taiwan, Korea, and the United Kingdom. Of these countries, only Mexico was not among the top 10 countries facing U.S. AD actions during 1980-93 (USITC, 1995, Figure 3-5, p. 3-5).

3/

Whenever monthly data were available, a simple monthly average was computed for each year from 1980-95. Otherwise, a simple average of quarterly data was used.

4/

Bohara and Kaempfer (1991) found no indication that tariffs Granger-caused variations in unemployment rates during the period 1895-1970 in the United States. Thus it would seem even less likely that the more narrowly targeted AD/CVD duties would have measurable economy-wide unemployment effects.

1/

Because of the high degree of collinearity between the unemployment rate and capacity utilization, the effects of these variables were evaluated separately.

2/

The REER is constructed so that an increase describes an appreciation of the dollar.

3/

The correlation coefficient between the first difference of the unemployment rate and the first difference of the import/GDP ratio is -0.80.

1/

This should not lead one to conclude that import penetration at the sectoral level is unimportant to the number of AD/CVD petitions. Indeed, using cross-section data, Finger (1981) found that import penetration was positively and significantly related to the number of AD/CVD cases.

2/

Such regressions are of limited value since they cannot capture all such significant downturns among trading partners that could be helping to induce specific AD/CVD petitions in a given year. Nevertheless, these do help to separate effects of own and foreign cyclical indicators.

3/

Steel products include, inter alia, steel wire nails, steel wire rod, steel rails, steel pipe (including oil country tubular goods), steel plate, steel sheet, steel bar, and steel shapes.

4/

In order to clarify the extent to which events leading up to the 1984 steel stabilization program may have inordinately affected the regression results, the sample was truncated to 1985-95. When this was done, the estimated effects using the unemployment rate and other explanatory variables remained essentially unchanged (including significance levels despite the smaller sample). However, in most cases the capacity utilization indicator, while having the expected sign, was no longer statistically significant.