The English term dumping is used in our language to refer to a commercial strategy that consists of selling products at a price below their cost with the aim of gaining market share. This practice is considered unfair since it aims to eliminate competitors.
Dumping comes from the verb dump , which translates as “pour” or “spread.” That is why in the English language the idea of dumping is also used with reference to throwing garbage or waste.
Returning to the economic notion, dumping usually appears in the context of international trade when an exporting company sets a price for a good lower than the production cost recorded in the importing country. In this way, local companies cannot compete and are excluded from the market.
Dumping, in this framework, is usually criticized because it harms national production . However, for those who defend the free market , dumping brings benefits to buyers, who obtain lower prices. The situation changes if, by eliminating competition and achieving a monopoly , the dumping firm then excessively raises the price.
In the first instance, dumping is apparently negative even for the producer who offers a good at a price lower than its cost . Its benefit is in the long term , when its competitors must withdraw from the market. In addition, the person responsible for dumping sometimes receives subsidies to export to certain countries, achieving profitability even when selling below cost.
The term dumping has other uses in our language, as can be seen below:
* exchange dumping : this is a type of sale at a loss, which takes place when a depreciation occurs in the national currency in reference to the others, so that the country's exports are favored. Although in this case the prices are not discriminated, the results are comparable with those described in the previous paragraphs;
* freight dumping : this concept is known in our language as sale at a loss of freight or cargo , and occurs when the transportation of products intended for export receives preferential rates. We should not confuse this situation with selling at a loss. In this case, dumping is not resorted to because transportation costs are one of the most effective resources to protect the national industry from foreign industry. The decrease in freight rates favors exporters, since it gives them the possibility of selling abroad without losing money for each product;
* hidden dumping : this tactic requires that the same prices be charged in both the national and foreign markets, so that at first glance there does not appear to be a sale at a loss, although in the background practices such as the following are carried out:
+ foreigners receive longer terms;
+ when exporting, transportation or packaging costs are not charged;
+ the quality of the exported products is superior to that of those consumed in the country of origin;
+ the merchandise sold in the local market differs from that exported in material, style or shape. Generally, the reason is found in the requirements of the legislation;
* official dumping : these are subsidies that are applied to exports with the aim of reducing companies' production costs, something that also allows them to compete against imports;
* social dumping : this is about getting certain producers to offer low prices thanks to the fact that their labor legislation does not subject them to many demands. This allows the importing country to obtain better prices than those of the exporter.