why import tariffs are useless

Filed in archive Global Economy on November 30, 2003

This article argues about the usefulness of import tariffs for DRAM chips.

"The Bush Administration took a more dramatic step. This summer, it sided with Micron and slapped a 44.3 percent tariff on Hynix's DRAM chips. At about the same time, the European Union levied tariffs of 34.8 percent.

Micron claims that Hynix illegally benefited from a multibillion-dollar debt restructuring its creditor banks arranged, which the Bush administration and the EU view as an unlawful government subsidy. Even if that is accurate, it won't last forever: South Korea eventually will find that other parts of its economy are ailing as a result and will stop. More to the point, South Korea's alleged profligacy is a great deal for US consumers, who get cheaper prices at Korean taxpayers' expense."

"But is South Korea actually subsidizing Hynix? Let's not concede that crucial point too quickly. T.J. Rodgers, the libertarian CEO of Cypress Semiconductor, wrote in a policy paper a few years ago that he once believed that "Japan was dumping DRAM chips into the United States, selling them below manufacturing cost. In retrospect, I believe that Japan simply got better at manufacturing than we were for a while and was able to produce the chips at extremely competitive costs."

While it might be true that some countries or companies do provide dumping prices to increase market share and eventually create a monopoly afterwards it's very seldom the case. But even consider a country or company does just this, it will burn money in a battle against competitors and expects to earn profits later, once it sets monopoly prices. But what happens once the monopoly prices are in the market - new competition will arise tying to get share of the lucrative market and it will price products competitive (at least below the monopoly price) once again. DRAM chips are hardly a natural monopoly (like huge reserves of oil), so why is there so much politics and so less economics for setting import tariffs?