Dumping

DEFINITION of dumping

Dumping means downward price movement. Dumping is when a country’s businesses lower the sales price of their exports to gain unfair market share.

WHAT IT IS IN ESSENCE

This term is used to indicate the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market.

This strategy involves significant export volumes of a product. And often put in risk the financial viability of the product’s producers in the importing nation.

Exporters usually drop the product’s price below what it would sell for at home. Or may even push the price below the actual cost to produce. Truth is they raise the price once they’ve destroyed the competition.

The main advantage of dumping is selling at an unfairly competitive lower price. A country subsidizes the exporting business to enable them to sell below cost.

HOW TO USE

The country is willing to take a loss on the product to increase its market share in that industry. It may do this because it wants to create jobs for its residents. Some countries often use dumping as an attack on the other country’s industry. In hopes to put that country’s producers out of business and become the industry leader.  

There is also a temporary advantage to consumers in the country being dumped upon. As long as the subsidy continues, they pay lower prices for that commodity.

The problem with dumping is that it’s expensive to maintain. It can take years of exporting cheap goods to put the competitors out of business. Meantime, the cost of subventions can add to the export country’s unlimited debt.
The second disadvantage is retaliation by the trade partner. Countries may place trade restrictions and tariffs to neutralize dumping.
The third disadvantage is censure by international trade organizations. These include the World Trade Organization and the European Union.