Dumping

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What is 'Dumping'?

Dumping is a term used in the context of international trade. It is the export by a country or company of a product at a price that is lower in the foreign importing market than the price charged in the exporter's domestic market. Because dumping typically involves substantial export volumes of a product, it often has the effect of endangering the financial viability of manufacturers or producers of the product in the importing nation.

BREAKING DOWN 'Dumping'

Considered a form of price discrimination, dumping occurs when a manufacturer lowers the price of a good entering a foreign market to a level that is less than the price paid by domestic customers in the originating country. The practice is considered intentional with the primary purpose of obtaining a competitive advantage in the importing market.

The Advantages and Disadvantages of Trade Dumping

The primary advantage of trade dumping is the ability to permeate a market with product prices that are often considered unfair. The exporting country may offer the producer a subsidy to counterbalance the losses incurred when the products are sold at a price below the costs associated with production.  A disadvantage of trade dumping is that it can be costly over time because producers may be subsidized to compensate for the lower sales price of the good. Additionally, trade partners who wish to restrict this form of market activity may increase restrictions on the good, which could increase the cost of exporting the good to the affected country or limit the quantity of the good the importing country will accept.

International Attitude on Dumping

While the World Trade Organization (WTO) reserves judgment on whether dumping is an unfair competitive practice, most nations are not in favor of dumping. Dumping is legal under WTO rules unless the foreign country can reliably show the negative effects of the exporting firm on its domestic producers. To counter dumping, most nations use tariffs and quotas to protect their domestic industries from the negative effects of predatory pricing.

The majority of trade agreements include restrictions on trade dumping. Violations of such agreements may be difficult to prove and can be cost prohibitive to fully enforce. If two countries do not have a trade agreement in place, then there is no specific ban on trade dumping between the countries.

Example of Dumping Tariffs in International Trade

In 2016, the International Trade Association decided that the antidumping duty levied on tissue products from the People’s Republic of China would remain in effect based on investigations completed by the Department of Commerce and the International Trade Commission (ITC). The decision was made because there was a strong likelihood that previous dumping would be repeated if the tariff was removed.