Question

Define: a. tariff b. dumping

Short answer

A tariff is a tax or duty imposed by a government on imported goods to allow domestic producers to compete more effectively. Dumping is when a company exports a product at a price lower than the market price in its home market, usually to increase market share in a foreign market or drive out competition.

Step-by-step solution

Define Tariff

A tariff is a tax or duty that a government places on a class of imported goods. In international commerce, a tariff is usually imposed to raise the price of imported goods, so that domestic producers can compete more effectively within their domestic market.

Define Dumping

Dumping is a process where a company exports a product at a price lower than the price it normally charges in its own domestic market. The intent of dumping is to increase market share in a foreign market or drive out competition.

Key concepts

Tariff

In the realm of international trade, a tariff is essentially a tax imposed by a government on goods that are imported into a country. It's like an added cost or a surcharge. The primary purpose of tariffs is to make imported goods more expensive compared to locally produced items.
This way, domestic producers can sell their products at competitive prices despite the presence of foreign competitors. Tariffs can be specific, meaning a fixed fee per unit of imported goods, or ad valorem, which means the tax is calculated as a percentage of the item's value.

• Protecting local industry: Tariffs make local goods more attractive because they keep the prices of foreign goods high.
• Generating revenue: Governments use tariffs to collect additional money from imports.
• Balancing trade deficits: By making imports costly, a country might reduce its trade deficit by encouraging local consumption.

While beneficial for domestic producers, tariffs might lead consumers to pay higher prices and can result in trade tensions between countries.

Dumping

Dumping occurs in international trade when a manufacturer in one country exports a product to another country at a price lower than what it charges in its home market. This strategy aims to either gain a foothold in a foreign market or eliminate competitors.
The idea is to make the imported product so cheap that local producers cannot compete, eventually driving them out of the market.

• Market Penetration: Companies might resort to dumping when trying to break into new markets to quickly gain a larger market share.
• Predatory Pricing: Dumping can be part of a deliberate strategy to wipe out competitors in the target market, creating a monopoly.
• Resulting Backlash: Many countries view dumping as unfair trade practice and may impose anti-dumping duties to protect their industries.

Dumping can lead to price wars and economic strain on domestic markets, prompting regulatory checks.

Market Competition

Market competition is a vital force in the functioning of the economy, affecting both producers and consumers. It occurs when different businesses vie for the same customer base, aiming to offer better quality, prices, or innovative products.
This competition pushes businesses to optimize efficiency and innovate continuously.

• Price Variability: Competing companies may lower prices to attract more customers, which can benefit consumers.
• Quality Improvement: In striving to stand out, businesses often enhance the quality of their products or services.
• Innovation: Competitive markets drive businesses to innovate, offering new products and solutions to consumer needs.

While competition benefits consumers by fostering choice and lower prices, it can be tough on businesses, especially small ones, struggling to keep pace with bigger players. Strategic measures like tariffs and anti-dumping duties can reshape competition dynamics, supporting or hindering market players.