International Trade: What Is Dumping and Why Does It Matter?

U.S. Customs and Border Protection (CBP) has been actively warning U.S. exporters of a scam purporting to offer them a solution for working around anti-dumping laws. The scam involves an email sent to targets, an email that claims to offer a legitimate way to dump goods without paying dumping duties. None of this means anything to you if you do not understand what dumping is.

In international trade, dumping is the practice of reducing the price of exported goods to a level lower than what domestic customers pay. If you sold a product in your own country for $1.00 but reduced the cost of the same product in other countries to just $.50, you could be guilty of dumping.

Dumping is essentially a price discrimination strategy. Price discrimination calls for setting the price of goods and services based exclusively on what buyers are willing to pay. It is not a bad thing in and of itself, but when it’s used in conjunction with flooding the market in order to gain an unnatural competitive advantage, there is a problem. That’s really what dumping is all about. It is price discrimination based on lowering prices rather than raising them.

  • Consumers Love Cheap Goods

Companies the world over are smart enough to know that consumers like cheap goods. And in fact, when all other things are equal, most consumers will choose the product that costs them the least. This is why companies work so hard to develop brand loyalty. They want customers who will buy on brand first, prices second.

In most cases involving dumping, exporters are looking for a competitive edge in another country. The goal is to flood the market in that country with a high volume of cheaply priced goods in hopes of attracting those customers whose primary focus is price.

It has been alleged on numerous occasions that Chinese companies practice dumping as a matter of due course. If so, that could explain why Chinese manufactured goods are so cheap the world over. Here in the U.S., cheap Chinese goods are just about everywhere. You can find them in department stores, pharmacies, grocery stores, and online.

  • Government Anti-Dumping Duties

Among the various tools that governments use to control dumping are anti-dumping duties. A duty is an amount of money added to the price of a good in order to bring its retail price in line with the rest of the market. Vigilant Global Trade Services out of Shaker Heights, Ohio says that anti-dumping duties are standard fare.

Most anti-dumping duties are assessed at the border, which is to say that the importer pays the bill prior to receiving goods. That amount is passed on to customers by marking up the price at both the wholesale and retail levels.

In theory, raising the price of targeted imports makes them less attractive than domestic products or fairly priced goods from other countries. Yet anti-dumping duties can have some negative effects, including reducing the competition that would otherwise force domestic manufacturers to produce better quality more efficiently.

  • Two Contentious Issues

Regardless of whether or not U.S. manufacturers fall victim to the scam the CBP is warning about, both dumping and anti-dumping duties are contentious issues on the global trade stage. They are two issues that are not likely to be resolved amicably in the foreseeable future.

In the meantime, U.S. companies should take notice of the fact that dumping is illegal. Furthermore, attempting to subvert anti-dumping measures by laundering goods through third parties is a foolish idea. Getting caught could mean serious penalties capable of threatening a company’s future.