Dumping in the International Trade Market
Individuals interested in international trade discussions have likely encountered the term “dumping,” which refers to unfair or predatory competition.
Dumping is, in principle, a lawful commercial practice, and its economic effects may be either beneficial or harmful depending on the position of the party involved in the transaction.
Motivations and Objectives of Exporting Countries
What Is Dumping?
In international trade, various technical terms are used, including dumping, also referred to as price undercutting. Dumping occurs when an exporter sells a product in a foreign market at a price lower than its domestic price.
This practice constitutes international price discrimination.
Because dumping often involves exporting large quantities of goods, it may cause significant harm to domestic industries in the importing country.
In addition, dumping can lead to unfair competition, excessive supply of goods at artificially low prices, and market distortion. Dumping may also threaten the economic stability of the exporting country and disrupt manufacturers’ production markets in the importing country.
Types of Dumping
Sporadic or Intermittent Dumping
This type of dumping occurs under exceptional and unpredictable conditions. It arises when domestic production exceeds target levels or when goods are sold, but unsold inventory remains. In such cases, producers sell surplus goods in foreign markets at lower prices without reducing domestic prices.
This situation is possible only when sufficient elasticity in foreign demand exists and the producer holds a monopolistic position in the domestic market.
The objective may be to test a product in a new foreign market or to eliminate a competitor from that market. In this form of dumping, producers aim to cover a portion of their fixed and variable costs to minimize losses.
Continuous Dumping
Continuous dumping occurs when a monopolistic producer consistently sells part of its output at higher prices in the domestic market while selling the remainder at lower prices in foreign markets. This typically happens when domestic demand is weak while foreign demand is stronger.
As production expands and costs decline, the producer refrains from reducing domestic prices. However, due to higher foreign demand, the producer maintains lower prices in external markets. As a result, the producer earns greater profits from sales in foreign markets.
Predatory Dumping
Predatory dumping occurs when a monopolistic firm sells its products in foreign markets at extremely low prices, or even at a loss, to eliminate competitors. Once competition is removed, the firm raises prices, thereby offsetting its earlier losses.
Reasons for Dumping
Producers may engage in dumping for various reasons, including the following:
- Market Entry and Positioning: Securing or maintaining a presence in foreign markets is one of the primary reasons monopolistic producers resort to dumping.
- Sale of Excess Production: When production exceeds domestic demand, monopolistic producers may be unable to sell surplus goods in the domestic market and therefore seek to sell them abroad at lower prices.
- Industrial Expansion: Dumping may be used to expand production capacity and industry scope. Expansion may generate domestic and international economic advantages and increase long-term profitability.
- Development of Trade Relations: Establishing new commercial relationships is another reason producers engage in dumping. By offering products at lower prices, producers can build relationships in foreign markets that may lead to greater future profits.
Frequently Asked Questions About Dumping in International Trade
Dumping refers to the practice whereby an exporter sells goods in a foreign market at prices lower than those charged in the domestic market. This practice may create unfair competition and negatively affect domestic industries in the importing country.
Dumping is generally classified into three types: 1. Sporadic or intermittent dumping, which involves selling surplus goods in foreign markets at lower prices without reducing domestic prices. 2. Continuous dumping, which involves consistently selling part of production at low prices abroad while maintaining higher domestic prices. 3. Predatory dumping, which involves selling goods at a loss to eliminate competitors and raising prices once market dominance is achieved.
Common reasons include entering or maintaining positions in foreign markets, selling surplus production, expanding industrial capacity, and developing new international trade relationships.
Dumping may lead to unfair competition, reduced income for domestic producers, economic instability, and increased dependence on foreign goods. In severe cases, domestic industries may suffer significant damage or collapse.
Dumping is a form of unfair competition that involves selling products at artificially low prices to eliminate competitors or penetrate new markets, thereby distorting fair market competition.
Importing countries may impose anti-dumping duties, apply import restrictions, conduct economic investigations, and enact protective legislation to mitigate the adverse effects of dumping and prevent unfair competition. What is dumping, and what does it mean?
What are the types of dumping?
Why do exporters engage in dumping?
What impact does dumping have on the importing country’s domestic market?
How is dumping related to unfair competition?
How do importing countries respond to dumping?
