Certification in Supplier Diversity Practice Exam

What is "dumping" in international trade?

1. Exporting goods at prices higher than their production cost

2. Exporting goods at prices below their production cost

3. Importing goods without tariffs

4. Selling goods at discounted prices domestically

The correct answer is: Exporting goods at prices below their production cost

Dumping refers to the practice of exporting goods at prices that are lower than their production costs. This strategy is often employed by companies seeking to gain market share in foreign markets by offering their products at artificially low prices. By selling goods below the cost of production, a company can undercut the competition, potentially driving local producers out of business. This practice can lead to significant negative economic impacts on the importing country’s domestic industry, which may prompt that country to impose anti-dumping duties to protect its own manufacturers. Understanding dumping is crucial in the context of international trade regulations, as it raises issues related to fair competition and can provoke responses from governments aiming to protect their local economies. The other options involve different trade practices that do not accurately define dumping.