Antidumping: Welfare Enhancing Retaliation?

Over the last two decades, the use of antidumping (AD) measures has been characterized by two main features. First and foremost, it has increased dramatically. Additionally, it has not - to a large extent - been used to counteract the existence of dumping, but rather in a strategic or retaliatory fashion. These empirical findings have led many to propose the elimination of this instrument altogether, on the basis that its current use is arbitrary and, consequently, welfare reducing. We argue that these concerns may be unfounded since, in a world of restricted trade policy instruments, a retaliatory use of AD might be welfar enhancing. By modeling the trade relationship between countries as a repeated game of hidden information, we show that retaliation can be welfare increasing with respect to a rigid rule on the use of AD. We stress the fact that, underlying this result, is the unavailability of transfers or export subsidies in the current world trading system