Question

4 - international trade and investment

learning objective: identify the entities and agreements that attempt to encourage global trade.

what is the reason for dumping in international trade?

a.) to prevent incurring customs duties
b.) to support fair trade practices
c.) to increase market share in international markets through a low pricing strategy
d.) to invest in long-term domestic development

Explanation:

Define dumping in international trade

In Global Business, dumping is a pricing practice where a company exports a product to another country at a price lower than the price it normally charges in its home market, or even below its cost of production.

Analyze the primary motivation for dumping

The main goal of dumping is to gain a competitive advantage in the foreign market. By offering products at extremely low prices, the exporting company can undercut local competitors, drive them out of the market, and rapidly increase its own market share.

Evaluate the given options

• a.) To prevent incurring customs duties: Incorrect. Dumping does not avoid tariffs or customs duties; in fact, it often triggers retaliatory anti-dumping duties.
• b.) To support fair trade practices: Incorrect. Dumping is widely considered an unfair trade practice because it distorts market competition.
• c.) To increase market share in international markets through a low pricing strategy: Correct. This directly aligns with the strategic intent of driving out competitors and capturing market share via predatory pricing.
• d.) To invest in long-term domestic development: Incorrect. Dumping focuses on foreign market penetration rather than domestic infrastructure or development.

Answer:

• a.) To prevent incurring customs duties
• b.) To support fair trade practices
• c.) To increase market share in international markets through a low pricing strategy (Correct answer)
• d.) To invest in long-term domestic development