What is Predatory Dumping
Predatory dumping is a type of anti-competitive behavior in which a foreign company prices its products below market value in an attempt to drive out domestic competition. This may lead to conditions where the company has a monopoly in a certain product or industry in the targeted market. The practice is also referred to as "predatory pricing."
BREAKING DOWN Predatory Dumping
"Dumping" in international trade refers to a company selling goods in another market below the price at which it would sell in its domestic market. Predatory dumping is a specific version of this in which the intention is to drive out domestic and other competitors in the targeted market, and ultimately aim at a monopoly in that market.
In this scenario, the foreign company, as well as domestic companies (and any other exporters active in the market), will be selling at a loss. For predatory dumping to work, the foreign company needs to be able to finance this loss until it can drive its competitors out of business — this could be done by subsidizing these sales through higher prices in the home country, or using other resources of the company such as a war chest. Once domestic producers are driven out of business (and any other exporters in the market driven out of it through low prices), the foreign company would have a monopoly and then be able to raise prices again as it sees fit.
Preventing Predatory Dumping
In practice, with the global economy being highly interlinked and open through trade liberalization, increased competition globally makes such an outcome unlikely. Moreover, such predatory dumping/pricing is illegal under World Trade Organization (WTO) rules if it harms producers in the targeted market, and countries can implement anti-dumping measures under WTO rules if domestic producers are being harmed.
The European Union (EU) has a specific framework to deal with dumping, and many countries (including the U.S., India and China) use anti-dumping measures. It is of course not only domestic producers who might be harmed, but other exporters too who cannot compete with artificially low export prices. However, the latter have no remedy under anti-dumping rules.
Anti-dumping measures are not considered protectionism, as predatory dumping is not a fair trade practice. The WTO rules are designed to help ensure that any anti-dumping measures that countries take are justifiable, and are not used as a guise for protectionism.