The Big Threat Called Price Dumping

Price dumping milk sardiniaDumping of milk on Sardinia. Farmers protesting against price dumping. Photo: Sky News / Screen grab

The Big Threat Called Price Dumping

Price Dumping means exporting an item to another country at a price below the domestic price. Dumping can have many negative and positive effects on the market. What are the positive and negative effects of this pricing strategy to the exporting and importing countries? Follow me in this article to learn everything worth knowing about dumping.


Price dumping (or simply dumping) means undercutting the price of products. Understanding this is a bit hard, but dumping is taking place around us. The steel used to build buildings, solar panels, fruits and agricultural products can all be traded through dumping. What is economic dumping and what is the effect? Dumping occurs when a country exports its products for less than domestic prices, or below the production cost, to another country. For example, if a television producer in the United States offers its TVs at home for $ 500 (and spent $ 300 on each), and sell these TVs in, for example, France for $ 250, it is Considered as dumping.

Effects of Dumping

Negative Impact: Rich countries produce surplus goods and export them to world markets, undermining the competitiveness of goods from less developed countries. This will, ultimately, result in increased poverty in the importing countries. In the previous example, French TV producers simply cannot compete.

Positive Effects: Consumers will get the product at lower prices, which will save money for consumers. Price dumping can make foreign markets (importers) more competitive and innovative. If they believe that dumping may continue for a long time, then there’s no choice but to try to reduce costs and improve product quality. Either way, this will be in the interest of the consumer. It will create revenues, more jobs and, possibly, better wages for employees in the exporting country.

Types of Price Dumping

  • Seasonal dumping: Whenever a manufacturer feels that an inventory of goods in the warehouse, due to seasonal changes, will not be in the customer’s domestic markets, may seek to sell it out on markets that call this type of dumping as seasonal dumping.
  • Short-term dumping: Sometimes large manufacturing companies sell their goods to foreign markets for a short time at a below price compare to their domestic sales price in order to eliminate their rivals in foreign markets. This type of tipper is called short-term dumping.

Long-term dumping: usually refers to commodities that are the product of the costing industry, that is, goods that, by increasing their production, lower the final cost of production, and the manufacturing company finds that its product is priced below the domestic price overseas to sell.

 


 

Anti-dumping

The World Trade Organization (WTO) has prohibited dumping practices and allows governments, if a breakdown of the domestic market is proven, to be able to impose tariffs on imported goods and services that have caused irreparable losses to domestic industries, in order to defend their industries. Thus, anti-dumping aims are to correct the trade-distorting effects of free trade. Indeed, anti-dumping is a means to ensure fair trade and is not an attempt to support the domestic industry; It helps the domestic industry to avert damage caused by dumping.

References

Wikipedia: Dumping (pricing_policy)
Dictionary of International Trade: Dumping
WTO: Technical Information on anti-dumping
Investopedia: Dumping
Dumping in Economics: Definition & Effects
Safety Signs: Illegal Dumping Signs


This article is written by our contributor, Ali Ashrafi, to be shared with the esteemed readers of Norway Today.

© Ali Ashrafi / #Norway Today
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