Dumping

Definition

Dumping refers to the practice of a company or country selling a product in a foreign market at a price that is lower than the cost of production or lower than the price charged in the home market. This is often done to gain market share or drive out competition in the foreign market.

5 Must Know Facts For Your Next Test

1. Dumping is considered an unfair trade practice as it can harm domestic industries and lead to job losses.
2. Governments may impose anti-dumping duties on imported products to offset the price advantage gained through dumping.
3. Dumping is often used as a strategy to gain market share, drive out competition, and establish a monopoly in the foreign market.
4. Developing countries may accuse developed countries of dumping their products at artificially low prices, harming the competitiveness of their domestic industries.
5. The World Trade Organization (WTO) has established rules and procedures to address dumping and other unfair trade practices.

Review Questions

• Explain how dumping can impact domestic industries in the importing country.
  • Dumping can have a significant negative impact on domestic industries in the importing country. By selling products at prices below the cost of production or below the price charged in the home market, the dumping company can undercut the prices of domestic producers, making it difficult for them to compete. This can lead to a loss of market share, reduced profits, and even the closure of domestic businesses, resulting in job losses and economic harm to the local economy.
• Describe the role of anti-dumping duties in addressing the issue of dumping.
  • Governments can impose anti-dumping duties on imported products that are being dumped in the domestic market. These duties are designed to offset the unfair pricing advantage gained through dumping and protect domestic industries from the harmful effects. Anti-dumping duties are calculated based on the difference between the dumped price and the normal value of the product, and they can be applied on a case-by-case basis. The imposition of anti-dumping duties aims to level the playing field and ensure fair competition in the domestic market.
• Analyze the potential motivations behind a company or country engaging in the practice of dumping.
  • Dumping can be used as a strategic tool by companies or countries to gain a competitive advantage in foreign markets. By selling products at artificially low prices, they can drive out domestic competitors, establish a dominant market position, and potentially raise prices in the future to recoup their losses. Dumping may also be used to dispose of excess production capacity or to retaliate against perceived unfair trade practices by other countries. However, the WTO has established rules and procedures to address such unfair trade practices, and governments can take action to protect their domestic industries through the imposition of anti-dumping duties or other trade remedies.

Related terms

Anti-Dumping Duty: A tariff imposed by a government on imported products that are being dumped in the domestic market, in order to offset the unfair pricing and protect domestic industries.

Predatory Pricing: A pricing strategy where a company deliberately sets prices low in order to eliminate competition, with the intent of raising prices once competitors have been driven out of the market.

Countervailing Duty: A tariff imposed by a government on imported products that are being subsidized by the exporting country, in order to offset the unfair advantage and protect domestic industries.