What is Price Dumping and How it Affects the Market

Trade authorities have tried time and again to offset the practice of price dumping when it becomes an immediate threat to an industry of a territory. But the inconsistencies still lurk in the shadows haunting and ominous as an unrecoverable material injury. And so, the quandary- can we justify the criticisms of academic economists over anti-dumping policies? Should we continue to hold on to the regimes that are indeed regulatory but also potent catalysts of undesirable results? To answer these questions, it is imperative to understand the theories and practices that dictate price dumping. 

What is Price Dumping?

In brevity, price dumping is a practice that discriminates international prices. As a result, the exporter entity sells a portion of the product at a significantly lower price in a foreign market and the remaining portion in the homeland at a relatively higher price.

Here’s a rough scenario for a better perspective, while the product is being sold for $100 in Country A [ where the goods were exported to]. At the same time, the exact circumstances the same product is being sold for $200 in country B [the home country].

 

What are the different types of price dumping?

These are the three most primary classifications of price dumping:

1.    Sporadic Dumping

Sporadic dumping is often practiced when there is a portion of product output left even after the final sales or when the production of goods exceeds its sale. In such a case, the company typically sells the remaining or unsold product output at a lower price in a foreign country without decreasing the original price in the country where it was manufactured viz. the home country.

Sporadic dumping enables the producer to minimize the losses while monopolizing the foreign market may or may not be the goal. In most cases, the producer already has a monopoly in the domestic market, and the demand for the product in the foreign market is fluid.

2.    Persistent Dumping

Persistent Dumping is rampant when the producers have a monopoly of a specific industry in the home country. In such a case, the producer sells a portion of the product output at a higher price margin in the domestic market and at a relatively lower price rate in the foreign country.

When the demand in the domestic country is cemented, the producer persistently does not reduce the price in the home country, keeping it stable. But because the demand in the foreign country is not elastic, the product’s price fluctuates towards a lower spectrum. Persistent dumping allows the producer to benefit significantly as he is able to sell a more significant number of products in the foreign market. Here the price discrimination continues indefinitely when there is no immediate need to implement such norms. 

 

3.    Predatory Price Dumping

Predatory Dumping as a more strategic principle when compared to other types of price dumping practices. The producer who already has a monopoly of an industry in the home country sells a portion of the product at a meager price in the foreign market. Initially, the producing company might continue to sell the product even at a loss.

The aim here is to drive out the domestic producers in the foreign market. When the producer eliminates the competition in a foreign country, it may increase the price of the product significantly. This allows the company to overcome the initial losses they might have incurred while selling the product at a loss in the foreign market.

Anti-Dumping- A friend Or A Foe?

Anti-dumping, to this day, remains as one of the most reliable strategies against price dumping hazards. The efforts of the World Trade Organization in liberalizing trade and mitigating the adverse import risks via the anti-dumping policies deserves more appreciation than it receives.

The protective ideologies suggest that dumping should be combatted by using administrative measures in specific sectors and should be a universal or more general trade policy. The very first anti-dumping act was implemented by Canada in the year 1904. The aim was to soothe the protests of domestic producers on the reduction of import taxes. Followed by the USA, in the present era, several other countries recognize the promise that anti-dumping policies convey against unfair trade practices.

The Effects of Price Dumping 

Price dumping causes the domestic market to erode and, in worse cases, to disappear from existence. The practice becomes virtually unforgivable in cases where there is zero competition from the domestic industries from the get-go. The inconsistencies in the market are the main factors responsible for making price dumping a viable strategy for export entities. Here are some of the effects of price dumping on trade and both domestic as well as foreign markets.

1.    Discourages Investment

When price dumping is prevalent in a market, there is a noticeable lack of investments but an increasing investment rate in the market that initiates the dumping. The victimized market experiences loss of investors due to higher risks, lower returns, and other variables. Hence, the producers enjoy a capital advantage while the investment vanishes in the foreign country for a specific industry.

2.    Complete Utility

As a short-term effect, disregarding the future implication, the producer is able to operate as a significantly lower unit cost when compared to the foreign market’s industries where the dumping is being practiced. Now, in the long run, even when the producer lifts the dumping from the foreign country, the industries are crushed beyond redemption, which makes it harder to begin domestic chain afresh.

A significant dynamic that results from dumping is that the industries in the import country are altered to such a negative margin that reestablishment becomes a fairy tale. The markets are manipulated constantly, while the consumers in the import country enjoy lower rates; when the competition ends, the producer raises the prices significantly, which comes as a shock in terms of the economy. While on the brighter side, the domestic country is able to increase its employment rate and accelerate the economy of the land. But in more practical scenarios, following a legitimate and mutually beneficial trade practice is the most effective cure against dumping as well as to prevent the misuse of anti-dumping policies.

The Most Noteworthy Dumping And Anti-Dumping Practises in History

·         The Price Dumping Case in Britain

Our case began in 1870, when Britain was at the forefront of all production technologies, banking, and trade. The blossoming British economy was almost enough to validate free trade and price dumping practices. But in hindsight, Britain’s success, more because of the fact that the country was the very first to implement industrialization before any other nation in the world. Almost as pregnant retribution, immediately after 1870, Germany and the United States emerged to launch a collective assault on the laid back and presumably deluded the British market.

Both Germany and the United States were more proactive about their trade and business practices. Although, British economists tried to justify price dumping as a positive phenomenon as it pushed the British industries to reform according to the changing trends. But the patterns confirm the relative decline in Britain’s industrial influence, demonstrating the side effects of price dumping and, on a larger scale-free trade.

·         The Japanese Dumping Case

These cases are a more recent addition to the price dumping inventory. It was quite apparent when the Japanese Pioneer company – Hitachi was accused of implementing predatory dumping patterns on its electrically programmable chips in the United States.

·         The Indian Case

China has been accused multiple times of pushing its stocks of unsold products into Indian markets. The country took critical hits as the employment rates went down by a large margin after China’s dumping practices. But it is not just one country China is facing clout as the largest photovoltaic panels manufacturers and using the reputation to implement some of the most devastating trade patterns in several countries. Perhaps It is safe to say this time, its truly- china against the rest of the world!

Conclusion

We can agree on the fact that the ready adoption of trade liberalization and competitive policies has changed the commercial waters drastically. Perhaps, the technological influences did dissolve the dynamics of competition that existed years ago. However, despite the commercial trade revolution, price dumping and its negative factors remain in the markets even today. However, many domestic industries are using anti-dumping policies to deem a product that is economical as a dumped commodity, thereby restricting its introduction in the market for consumer benefit. To prevent the phenomenon from reverberating, it is vital to clear the misunderstanding against dumping. According to the directives of the World Trade Organization, a country must implement anti-dumping policies only if the product is harming its domestic industries and local producers.

A product is well-classified as a dumped commodity only when it is being sold at a relatively lower price in the foreign market and at a higher price in the home country. Another way of identifying dumping is to assess whether a product’s export price is less than its overall consumption in the country where it is being produced. If these cases prove to be accurate, the foreign country receiving the products can impose anti-dumping duty on the incoming products.

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