# Understanding Dumping in Trade: Price Discrimination and Global Attitudes

## What Is Dumping?

Dumping is the export of a product at a lower price in foreign markets than in domestic markets. Dumping is controversial because it's seen as an unfair pricing strategy in international trade. It can cause financial harm to domestic producers in the importing nation. Dumping is allowed by WTO rules unless the importing country can prove harm to its local producers. Individual countries use tariffs and quotas to shield their local producers from dumping.

### Key Takeaways

*   Dumping involves selling a product in a foreign market at a price lower than in the domestic market.
*   It's considered unfair trade, often harming local producers in the importing country.
*   The World Trade Organization allows dumping unless it can be proven to harm domestic producers.
*   To counteract dumping and to protect their industries, countries impose tariffs and quotas.
*   Dumping can help exporters gain market foothold but may lead to international trade disputes.

![Dumping](https://www.investopedia.com/thmb/uPVTq5e5SqrageuV5KgNXAArUM0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dumping.asp-final-4db836f05caa467eba9729d31bf73a43.png)

*— Investopedia / NoNo Flores*

## How Dumping Impacts International Trade

Dumping is considered a form of [price discrimination](https://www.investopedia.com/terms/p/price_discrimination.asp). It occurs when a manufacturer lowers the price of an item entering a foreign market to a level that is less than the price paid by domestic customers in the originating country. The practice is considered intentional with the goal of obtaining a [competitive advantage](https://www.investopedia.com/terms/c/competitive_advantage.asp) in the importing market.

## Pros and Cons of Dumping in Trade

The primary advantage of trade dumping is the ability to permeate a market with product prices that are often considered unfair. The exporting country may offer the producer a [subsidy](https://www.investopedia.com/terms/s/subsidy.asp) to counterbalance the losses incurred when the products sell below their manufacturing cost. One of the biggest disadvantages of trade dumping is that subsidies can become too costly over time to be sustainable. Additionally, trade partners who wish to restrict this form of market activity may increase restrictions on the good, which could result in increased export costs to the affected country or limits on the quantity a country will [import](https://www.investopedia.com/terms/i/import.asp).

## Global Perspectives on Dumping Policies

While the [World Trade Organization (WTO)](https://www.investopedia.com/terms/w/wto.asp) reserves judgment on whether dumping is an unfair competitive practice, most nations are not in favor of dumping. Dumping is legal under WTO rules unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers. To counter-dumping and protect their domestic industries from [predatory pricing](https://www.investopedia.com/terms/p/predatory-pricing.asp), most nations use [tariffs](https://www.investopedia.com/news/what-are-tariffs-and-how-do-they-affect-you/) and [quotas](https://www.investopedia.com/terms/q/quota.asp). Dumping is also prohibited when it causes "material retardation" in the establishment of an industry in the domestic market.

The majority of [trade agreements](https://www.investopedia.com/terms/t/trading-partner-agreement.asp) include restrictions on trade dumping. Violations of such agreements may be difficult to prove and can be cost-prohibitive to enforce fully. If two countries do not have a trade agreement in place, then there is no specific ban on trade dumping between them.

## Case Study: An Example of Dumping in Action

In January 2017, the International Trade Association (ITA) decided that the anti-dumping [duty](https://www.investopedia.com/terms/d/duty.asp) levied on silica fabric products from China the previous year would remain in effect based on the investigation by the Department of Commerce and the International Trade Commission that showed that the silica products from China were selling at less than [fair value](https://www.investopedia.com/terms/f/fairmarketvalue.asp) in the United States. The ITA ruling was based on the fact that there was a strong likelihood that dumping would repeat if the [tariff](https://www.investopedia.com/terms/t/tariff.asp) was removed.

## What Is Bad About Dumping?

Dumping can be detrimental in many respects. Most obviously, it can result in the flooding of imported goods in a foreign market. This can harm local and existing producers and potentially even drive them out of business. From a political standpoint, dumping can also disrupt relations between countries.

## Why Do Companies Do Dumping?

Companies can be driven to engaging in dumping for a number of reasons. Primarily, it allows them to gain a foothold in new markets abroad. If done for an extended period of time, dumping can eventually drive out competitors, allowing a company to establish an monopoly on a good or service.

## What Is the Dumping Margin?

The dumping margin is the difference between the cost of a product in a domestic market and the cost at which it's being exported abroad.

## The Bottom Line

Dumping is the practice of exporting goods at prices lower than in the domestic market. It's considered a form of price discrimination and can be used to gain a competitive edge in foreign markets. While dumping can provide short-term benefits for exporters, it often harms domestic producers in importing countries and may disrupt international trade relations. The potential negative effects of dumping on domestic industries include the risk of business closures and market manipulation. Countries defend their domestic producers against dumping by establishing tariffs and quotas. The WTO permits dumping unless it is shown to harm domestic producers.

> **Article Sources**
>
> 1.  World Trade Organization. "[Technical Information on anti-dumping](https://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm)."
>     
> 2.   International Trade Administration, U.S. Department of Commerce. "[Commerce Finds Dumping and Countervailable Subsidization of Imports of Certain Amorphous Silica Fabric from the People’s Republic of China](https://enforcement.trade.gov/download/factsheets/factsheet-prc-certain-amorphous-silica-fabric-ad-cvd-final-011817.pdf)," pages 1-7.