What Is Dumping?
Dumping is a term used in the context of international trade. It's when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market. Because dumping typically involves substantial export volumes of a product, it often endangers the financial viability of the product's manufacturers or producers in the importing nation.
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 goal being obtaining a competitive advantage in the importing market.
- Dumping is when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market.
- The biggest advantage of dumping is the ability to flood a market with product prices that are often considered unfair.
- Dumping is legal under WTO rules, unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers.
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 below manufacturing cost. One of the biggest disadvantages of trade dumping is that the subsidies can become too costly over time to be sustainable. Additionally, trade partners who wish to restrict this form of market activity may increase restrictions on the good, which could result in increased export costs to the affected country or limits on the quantity a country will import.
International Attitude on Dumping
While the World Trade Organization 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 the exporting firm has caused its domestic producers. To counter dumping, most nations use tariffs and quotas to protect their domestic industries from predatory pricing. Dumping is also prohibited when it causes "material retardation" in the establishment of an industry in the domestic market.
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 them.
Example of Dumping Tariffs in International Trade
In 2016, the International Trade Association decided that the anti-dumping duty levied on tissue products from the People’s Republic of China would remain in effect based on Department of Commerce and International Trade Commission investigations. The decision was made because there was a strong likelihood that dumping would repeat if the tariff was removed.