What is dumping? Why do firms dump goods?

In economics, Dumping refers to manufacturing firms exporting goods at a lower price than their domestic price or their cost of production. It is a type of predatory pricing. Predatory pricing is the strategy of temporarily setting prices below cost to undermine and eliminate competition, intending to raise prices after competitors exit the market.

Dumping also refers to agricultural subsidies paid out to farmers in the US and European Union, who then sell many foods around the world at artificially low prices.

According to ft.com/lexicon, dumping is:

“The sale of an imported commodity at a price lower than the cost of producing it in the exporting country. In securities trade, the dumping of shares means the substantial sale of stock.”

There are three main different types of dumping: persistent, predatory, and sporadic.

Dumping
Many say US farming subsidies have destroyed Mexican agriculture, causing farmers to abandon their lands and migrate northwards. (Image created by Market Business News)

Persistent-dumping

This is international price discrimination that goes on indefinitely.

Exporting firms benefit from this when demand in a foreign market is more elastic than the demand in the company’s home market.

Predatory-dumping

Used by manufacturers as a means of eliminating competition in a foreign market. High domestic prices are used to supplement the reduced revenue of exporting cheaper goods.

By exporting goods at cheap prices exporters are able to drive off any competition in the area. Once competition has been eliminated, the firm can then raise the price of the product and generate more revenue.

The importing country usually complains, because its market might end up being controlled by a foreign monopoly.

Sporadic dumping

This occurs when there is a temporary surplus of a specific product. Businesses will dump surplus goods in foreign markets without having to reduce prices in their domestic market. The domestic market refers to the market within a country’s borders.

Anti-dumping measures

The World Trade Organization’s (WTO’s)  “Anti-dumping Agreement” ensures that its members do not dump things abroad arbitrarily.

The agreement states that measures can be carried out only if sales of a dumped product causes material injury to a domestic industry that produces a similar good.

  • In the US

Domestic firms can start a petition, and the United States Department of Commerce will determine “whether the alleged dumping or subsidizing is happening, and if so, the margin of dumping or amount of subsidy.”

  • In the European Union

Firms can file petitions, and an investigation by the European Commission will investigate the case to determine whether: “there is dumping by the exporting producers in the country/countries concerned, material injury has been suffered by the Community industry concerned, there is a causal link between the dumping and injury found, the imposition of measures is not against the Community interest.”

The EU’s Common Agriculture Policy has been accused by many economists of undermining the livelihoods of millions of farmers in developing countries who cannot compete against ‘dumped’ cheap produce in their markets.

The proliferation of such practices has spurred debates on the need for more robust global frameworks to enhance fair trade and protect small-scale farmers globally.

Activists also highlight the environmental toll of such policies, which can lead to unsustainable agricultural practices and exacerbate climate change challenges.

Dumping – vocabulary and example sentences

There are many compound nouns containing the word “dumping,” such as “anti-dumping measures.” A compound noun is a term that consists of two or more words. Let’s take a look at seven of such terms, their meanings, and how we can use them in a sentence:

  • Dumping Investigation

An official examination by a government or international trade body to determine whether dumping has occurred.
Example: “The recent dumping investigation led to the imposition of tariffs on the imported goods in question.”

  • Dumping Tariff

A tax imposed on imported goods if they are found to be dumped and causing harm to domestic industries.
Example: “The government levied a dumping tariff on foreign textiles to protect the local industry.”

  • Anti-Dumping Measures

Actions taken by a government to restrict imports of unfairly low-priced goods and prevent dumping.
Example: “The country implemented strict anti-dumping measures to safeguard its manufacturers.”

  • Dumping Practice

The act of selling goods abroad at a price lower than the home market price or production cost.
Example: “International courts often adjudicate disputes arising from alleged dumping practices.”

  • Dumping Penalty

A financial punishment imposed on companies or countries that engage in the practice of dumping.
Example: “After a thorough investigation, the international trade commission applied a dumping penalty to the offending firm.”

  • Dumping Margin

The difference between the market value or cost of a product in the exporting country and the price it is sold for in the importing country.
Example: “The trade authority calculated the dumping margin to determine the appropriate level of duties.”

  • Export Dumping

The action of a country or company exporting goods at prices lower than the domestic market.
Example: “Export dumping has been a contentious issue in trade negotiations between the two countries.”

Two Video

These two educational videos come from our sister channel on YouTube – Marketing Business Network. One explains what “Dumping” is, and the other is all about “Predatory Pricing”. Both videos use easy-to-understand vocabulary and examples.

  • What is Dumping?

  • What is Predatory Pricing?