An Introduction to Dumping

US Congress defines dumping as an unfair trade practice, where imports sold in the US market is priced with less than 8% profit margin over the production cost. While it is not illegal to dump prices on a global scale (WTO is not regulating the prices), it is often an unwanted scenario and countries put heavy anti-dumping laws and tariffs to protect their economies.

Where a company has a cost advantage and sees a market with high prices being paid for a specific product, they can start exporting to that country and sell at price levels way below the market price – even if they are not making profits initially. The goal here is to bring the market price below what local producers can make any profits. This action will force local competition out of business, and when all competition is eliminated, the dumping company will bring the prices up again. On the long run, this is very dangerous for the economy of the host country and a method of exploitation.

 

As of 2006, there were 64 countries with anti-dumping laws. Globally, China gets most of the dumping criticism and European Union countries are actively taking measures against China to protect their economies.

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