Dumping

Definition

Dumping refers to the practice of a company or country selling products in a foreign market at a price lower than the cost of production or lower than the price charged in the domestic market. This is done with the intention of driving out competition and gaining a larger market share.

5 Must Know Facts For Your Next Test

1. Dumping is considered an unfair trade practice as it can harm domestic industries in the importing country.
2. Dumping often occurs when a company has excess production capacity or is trying to gain a foothold in a new market.
3. Governments can impose antidumping duties to offset the price advantage of dumped goods and protect domestic industries.
4. Developing countries may be more susceptible to the negative effects of dumping due to their less-established industries.
5. Addressing dumping is a key aspect of fostering global trade and maintaining a level playing field for international competition.

Review Questions

• Explain how dumping can impact global trade and the domestic industries in the importing country.
  • Dumping can have a significant impact on global trade and domestic industries in the importing country. By selling products at artificially low prices, companies engaging in dumping can undercut the prices of domestic producers, making it difficult for them to compete. This can lead to the loss of market share, reduced profits, and even the closure of domestic businesses. Dumping can also distort the natural flow of trade, as it allows the dumping company to gain a larger market share through unfair means. Governments may respond by imposing antidumping duties to offset the price advantage of the dumped goods and protect their domestic industries.
• Describe the role of subsidies in enabling companies to engage in dumping practices.
  • Subsidies provided by governments can play a key role in enabling companies to engage in dumping practices. Subsidies can take the form of financial assistance, tax breaks, or other forms of support that help domestic producers lower their production costs. With these subsidies, companies can sell their products in foreign markets at prices that are below the cost of production or below the prices charged in their domestic market. This price advantage allows them to undercut the competition and gain a larger market share, even if it means selling at a loss in the short term. Addressing the issue of subsidies is an important aspect of fostering global trade and ensuring a level playing field for all participants.
• Evaluate the potential long-term consequences of dumping on the global economy and the development of domestic industries in importing countries.
  • The long-term consequences of dumping on the global economy and the development of domestic industries in importing countries can be significant. If left unchecked, the practice of dumping can lead to the erosion of domestic industries, as they are unable to compete with the artificially low prices of the dumped goods. This can result in job losses, reduced investment, and a decline in the overall economic well-being of the importing country. In the long run, the lack of a robust domestic industry can make the importing country more dependent on foreign suppliers, reducing its ability to participate in global trade on an equal footing. Additionally, the distortion of trade flows caused by dumping can lead to inefficient allocation of resources and hinder the development of comparative advantages. Addressing dumping through measures like antidumping duties and strengthening international trade agreements is crucial for fostering sustainable global trade and economic growth.

Related terms

Antidumping Duties: Tariffs or taxes imposed by a government on imported products that are being dumped in the domestic market, in order to offset the price advantage of the dumped goods.

Predatory Pricing: The act of setting prices artificially low with the intent of driving competitors out of the market, after which prices can be raised to recoup losses.

Subsidies: Financial assistance provided by the government to domestic producers, which can enable them to sell their products at lower prices in foreign markets.