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Personal Finance. Your Practice. Popular Courses. Economy Economics. What Is Dumping? Key Takeaways Dumping occurs when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market.
The biggest advantage of dumping is the ability to flood a market with product prices that are often considered unfair. Dumping is legal under World Trade Organization WTO rules unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers. Countries use tariffs and quotas to protect their domestic producers from dumping. Article Sources. Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Kimberly Amadeo is an expert on U. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact.
He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business. Dumping occurs when a country's businesses lower the sales price of their exports to gain market share.
By flooding the target export market with drastically lowered prices, it often puts that nation's competing firms out of business. Learn about the pros and cons of dumping, and what measures nations take to prevent it. With dumping, a country's businesses drop their product's price on the foreign market below what it would sell for at home.
They may even push the price below the actual cost to produce. Then they raise the price once they've destroyed the other nation's competition. For example, if France exported tires to the U. A prolonged "dumping" of cheap tires could force American tire manufacturers out of business. While this could also be costly to France, once it eliminated American competition for its tires, it could hike the price again and recoup some of the lost revenue.
Dumping works by eliminating foreign competition through artificially depressing a product's prices in that country. It's often viewed as an unfair tactic that floods a market with products priced so cheaply that competitors can't keep up. The country that is dumping the products may help its businesses with subsidies until the competition is destroyed and prices resume normal levels.
For instance, if France was dumping tires cheaply in the U. The French government could subsidize its tire manufacturers until the American tire companies were pushed out of the market.
Then the French tire makers could resume pricing the tires at normal levels, at which point their government subsidies could end. A country prevents dumping through trade agreements. If both partners stick to the agreement, they can compete fairly and avoid dumping. Violations of dumping rules can be difficult to prove and expensive to enforce. Trade agreements don't prevent dumping with countries outside of the treaties. That's when countries take more extreme measures.
Anti-dumping duties or tariffs remove the main advantage of dumping. An export quota limits the amounts of exports a country will allow. In , the United States pressured Japan into an export quota on Japanese cars. Japan dropped the quota in Another option is to support domestic companies. When governments subsidize industries, they give sums of money to businesses to help cover costs and prevent them from going bankrupt. The United States subsidizes certain agricultural crops to ensure a steady food supply, for example.
Dumping in international trade is a major issue. Unrestrained dumping would allow large companies and rich countries to dominate the global economy. A large company could enter a small country, flood the market with cheap goods, and then drive domestic companies out of business.
Once the competition is driven out of business, the large company would control the market. Having secured a monopoly, they could raise prices without worrying about competitors undercutting them. For this reason, dumping remains one of the most contentious issues in geopolitics. Many countries guard their internal markets and may use tariffs and other measures to protect them. This can lead to contentious disagreements between national authorities. In turn, political squabbles can affect international trade.
Countries can erect trade barriers, refuse to export vital goods, and take other measures that affect trade. This can start a trade war and restrict free trade. Ultimately, dumping undermines the global market economy. Dumping allows companies and countries to gain market share.
This will help the exporting company grow and could lead to increased revenues and profits. The home country, meanwhile, is able to grow industries, which could create jobs and increase tax revenues. There are many disadvantages of dumping, however. First, dumping can be expensive. The offending country or company often has to subsidize losses, which can add up to a lot as they wait for their competitors to exit the market. Further, these costs are going to add up, while risks increase.
After incurring losses to support exports, the aggressor company could find itself locked out of markets or dragged into international courts. On top of the losses already incurred, the aggressor might face duties or other punishments. Dumping allows powerful companies and countries to take control of markets. Without restraint, some large companies would secure monopolies, which, in turn, would lead to higher prices and less innovation.
This would hurt consumers. Further, dumping could impede economic development, especially in smaller, poorer countries. This could result in lost jobs, tax revenues, and more. Dumping could trap less developed countries in poverty and allow wealthier countries to extract wealth from them.
If this leads to higher prices, it also means poorer countries and individuals will have to spend a larger portion of their limited income on expensive products and services. For these reasons — among others — both governments and international authorities try to prevent dumping. Factors of production are all the things used to produce goods and services — land, labor, capital, and enterprise.
Bull markets describe a period of growth for a stock, an industry, entire markets, while bear markets reflect a decline. A W-9 is a tax form U. Return on invested capital ROIC is a measure of how efficient a company is at using its invested capital to generate a profit.
Revenue is the total income generated by a business through sales of products or services.
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