Monday, 20 may 2019 | Redacción CEU
Market globalization, high mobility and the development of new technologies have helped to boost a new context in which borders are increasingly blurred. In response to it, more and more companies are turning their attention to foreign markets. This situation is reflected in the different news that we receive daily: tariff increases, international agreements, commercial wars, messenger robots,... Over time, citizens have learnt some terms about international trade, but not all of them are simple to understand. Today, we want to shed some light on one of these concepts: "dumping". What does this commercial strategy consist of? What are its possible causes and consequences? What are the different types of dumping? How is dumping combated?
In the international section of both written and audio-visual media, it is easy to find passing references to dumping strategies or anti-dumping measures which countries adopt. We find these terms especially in news related to the United States and China, but also to other states (including Spain). But, do we really understand what the media mean when they mention dumping?
Dumping and its different approaches
Dumping is a commercial practice that involves selling below the regular price or the production cost in a foreign market. This strategy enables exporters to access the market quickly and efficiently, since prices are substantially lower than the usual ones. This naturally has a positive effect on the sale of the product and a negative impact on direct competitors.
Dumping is considered as an unfair practice, as its main objective is to enter the foreign market eliminating competition at a single stroke. Meaning, it may become a very effective tool when it comes to monopolizing a market. However, there are also some exceptions. For example, this is the case of a company that resorts to dumping on only one occasion and in a timely manner in order to get rid of excess production.
On other occasions, the government of the exporting country fosters itself these practices providing subsidies for the export of a particular product or good. Thanks to them, companies can sell below the cost price without losing. When this happens, a situation of inequality arises, due to the fact that the national producers cannot compete with the prices of the companies that come to their country. This type of practices might put the industry and employment at risk.
Types of dumping
There are numerous types of dumping: social, cyclical, double, ecological, exchange,... However, below we have highlighted the most representative and significant modalities of this commercial practice:
- Sporadic or intermittent dumping: The domestic market is not able to absorb excess production and, for a short period of time, sells that surplus at a lower price than the foreign market does.
- Predatory Dumping: Its objective is to enter the market, eliminate competition quickly and take control of the market. As its name indicates, it is the most ferocious type of dumping, since the exporter is willing to face losses in order to fulfill its mission. Once its purpose has been achieved, prices go up.
- Persistent dumping: The exporter constantly sells to another country at lower prices than in the origin market. Thus, it is more competitive in foreign markets, as these tend to have a more elastic demand. This strategy seeks to maximize profits through the segmentation of markets after realizing that they are not connected.