In international trade, what does the term “dumping” mean?

The term “dumping” in international trade specifically refers to the practice of selling goods in a foreign market at a price lower than their production cost. This can occur when a company aims to gain market share in a particular region by undercutting local prices, often leading to unfair competition.

The rationale behind dumping is that a company might temporarily absorb losses or utilize excess inventory to enter new markets, potentially driving local competitors out of business. After establishing a foothold in the market, the company may raise prices again once it has less competition.

Understanding this concept is crucial for international trade regulations, as many countries have anti-dumping laws in place to protect domestic industries from such practices. This ensures fair competition and helps maintain market stability by preventing significant price distortions that could arise from an influx of artificially low-priced imports.