Why do international trade agreements usually prohibit dumping?

1 Answer

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

International trade agreements generally prohibit dumping because it is seen as an unfair trade practice.

Dumping is the practice of selling large amounts of some product below cost or below fair market value in a foreign country.  The point of doing this is to run a firm's competitors in that market out of business.  The firm doing the dumping absorbs losses until the competitors go out of business and then raises prices.

This practice is usually seen as unfair because it allows large firms in one country to destroy competitors in a noncompetitive way.  The large firms win in the end not because they can make products more cheaply or efficiently but simply because they are bigger and can outlast their competition.  This is bad for industries in the target country and bad for that country's consumers in the long run.