Social Dumping and Trade Policy

Abstract

This paper investigates the effects of social dumping in cases where firms strategically interact in the output market. Two firms (Northern and Southern) compete in the Northern market. The Southern firm practices social dumping by exploiting its monopsony power in the Southern labor market. Using the Cournot-Ikema curve, I diagrammatically demonstrate that social dumping by the Southern firm is actually beneficial to the Northern firm. However, Northern consumers suffer from social dumping. Imposing social clause tariffs gives a strategic advantage to the Southern firm. At the same time, it may improve Northern social welfare. JEL Classification: F12, F13, J42, L13.