Economy

dump

What is dumping?

Dumping is a term used in international trade. It refers to the export of a product by a country or company in a foreign import market at a price lower than the exporter’s domestic market price. Since dumping usually involves the export of a product in large quantities, it often jeopardizes the financial viability of the manufacturer or producer of the product in the importing country.

key takeaways

  • Dumping occurs when a country or company exports a product at a price lower than the exporter’s domestic market price.
  • The biggest advantage of dumping is the ability to flood the market with prices for products that are often considered unfair.
  • Dumping is legal under World Trade Organization (WTO) rules unless the foreign country can reliably demonstrate the negative impact of the exporting company on its domestic producers.
  • Countries use tariffs and quotas to protect their domestic producers from dumping.

Understanding Dumping

Dumping is considered a form of price discrimination. This happens when a manufacturer lowers the price of a commodity entering a foreign market below the price paid by domestic customers in the country of origin. This practice is believed to be intentional to gain a competitive advantage in the import market.

Advantages and disadvantages of dumping

The main advantage of trade dumping is the ability to penetrate markets at prices of products that are often considered unfair. Exporting countries can provide subsidies to producers to offset losses when products are sold below their manufacturing costs. One of the biggest drawbacks of trade dumping is that over time, subsidies can become too expensive to be sustainable. In addition, trading partners wishing to limit this form of market activity may increase restrictions on commodities, which could result in higher export costs for affected countries or restrictions on the amount a country can import.

International dumping attitude

Although the World Trade Organization (WTO) reserves its judgment on whether dumping is an act of unfair competition, most countries do not approve of dumping. Dumping is legal under WTO rules unless the foreign country can credibly show that the exporting company has had a negative impact on its domestic producers. To combat dumping and protect their domestic industries from predatory pricing, most countries use tariffs and quotas. Dumping is also prohibited when it creates a “material impediment” to the establishment of an industry in the domestic market.

Most trade agreements include restrictions on trade dumping. Breach of such agreements can be difficult to prove and costly to fully enforce. If there is no trade agreement between the two countries, then there is no specific trade dumping ban between them.

real world example

In January 2017, the International Trade Association (ITA), based on the findings of the U.S. Department of Commerce and the International Trade Commission, showed that anti-dumping duties imposed on silica fabric products imported from China in the previous year remained in effect. Silica products from China sell for less than fair value in the United States. The ITA’s ruling is based on the fact that dumping is likely to recur if the tariffs are removed.

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