Katheryn Russ University of California, Davis

1. Discussion ofAn Empirical Examination of the Excess Capacity Hypothesis: Trade Protection, Subsidization, and the Foreign Export Supply of SteelbyBruce A. Blonigen and Wesley W. Wilson Katheryn Russ University of California, Davis SCCIE 8th Annual Conference on International Economics

2. The US steel industry has not been victimized by dumping • Inference from conventional ITA measures of CVDs: At most 13% of steel imports impacted by subsidies, only 2.6% of entire US steel market • New measure: No evidence that foreign steel producers operate with excess capacity, a tell-tale sign of anti-competitive subsidies

3. Identifying dumping • Theory: Excess capacity • Staiger and Wolak (1992) • Foreign firms produce at full capacity and dump whatever is not purchased in their native market • Negative relationship between native demand and exports by foreign firms • Zero relationship when native demand absorbs all production

4. Identifying dumpingFirst empirical application of Staiger and Wolak • Empirics: Regress foreign steel exports to US on measures of demand in foreign firms’ native market • Test for negative relationship between native market demand and exports to US • Test for zero supply response when native demand is high (absorbs all foreign production at full capacity) • Find support for both predictions

5. Controls • “But Europe/China/Canada’s different…”--Country dummies • “What about fluctuations in US demand for/supply of steel”--Year dummies, US steel price • “Supply/demand elasticities are not the same for each product”--Product dummies • “What if Germany produces the world’s finest steel rods and the world’s worst ingots?”--First-differencing by country-product pairs • “Aren’t exports to the US endogenous to US trade policy?”--Measures of 4 types of US trade restrictions on steel

6. Shocks to demand v. marginal cost • Increases in marginal costs could offset positive demand shocks in the native market making QF (and thus exports) look inelastic • Wages vary by country and year, positively correlated with demand

7. Source: IMF IFS

8. Source: IMF IFS

9. How segmented are foreign markets? • Dumping behavior as depicted here depends on segmentation of a foreign firm’s native market from the rest of the world • Zero elasticity may just signal trade with more open markets, where high native demand may mean more steel imports with no forced drop in steel exports • Degree of segmentation may vary by country and year • Measurement of openness of native market

10. Foreign firms on the fringe • Assumed here that foreign firms are price takers in US market—useful to make model simple and transparent • Staiger and Wolak assume foreign firms have market power in the rest of the world • Small market share of imports in overall US market for steel products convincing justification • Showing small market share of imports by category could be more convincing

11. An important contribution • Relevant: Use of AD, CVD to protect steel industry expensive for taxpayers and consumers • New empirical approach to identifying protection-worthiness • Simple, transparent model and methodology • More accurate, cost efficient than detecting dumping effects via computing subsidies/sales • Dynamic extension for use with higher frequency data when K may not be fixed, but a state variable? Using monthly data series with the new method may allow fast, cheap, country-specific analyses by government agencies