Dumping

Published Apr 9, 2023

Definition of Dumping

Dumping is the practice of selling goods or services in a foreign market at a lower price than they are sold in the domestic market. This means that the export price is less than the cost of production. The objective of dumping is to gain a large market share in the foreign market, prevent competition, or drive out rivals.

Example

A classic example of dumping occurred in the 1990s when Japanese car manufacturers entered the US market. They offered their cars at a much lower price than American automakers could match, despite being of similar quality. This led to a rapid growth in market share for Japanese automakers in the US market, causing American automakers to lose market share and lay off thousands of workers. Later, the US government imposed tariffs on Japanese automakers to prevent further dumping.

Dumping can also occur in agriculture markets. For example, if a country subsidizes its agricultural sector, it can sell goods at a lower price in foreign markets than domestic producers. This will lead to reduced market share for domestic producers, who will be forced to reduce prices or lay off workers.

Why Dumping Matters

Dumping is a controversial trade practice because it can harm domestic industries, leading to job losses and economic instability. Dumping can also lead to lower-quality goods and services entering the market, as foreign producers are incentivized to cut costs in order to offer lower prices.

Additionally, dumping creates an uneven playing field in global trade, which may lead to tension between trading partners. For these reasons, many countries have laws and regulations in place to prevent dumping.