Definition
Trigger Point, Trigger Price
The term “Trigger Point” or “Trigger Price” refers to a predetermined price level at which the cost of an imported commodity is considered to be significantly lower than that in its country of origin. When the imported good’s price reaches or falls below this trigger point, it triggers automatic trade restrictions or protective measures to be applied against that particular commodity or product. These measures are intended to protect domestic markets from unfair competition and to avoid dumping practices where goods are sold internationally at below-market prices.
Examples
Steel Import Tariffs:
- The U.S. government sets a trigger price for imported steel. When imported steel’s price drops below this trigger price, tariffs or quotas may be applied to protect U.S. manufacturers from unfair pricing strategies by foreign producers.
Agricultural Products:
- A country might set a trigger price for imported wheat. If the import price falls below this level, it could initiate restrictions to protect domestic wheat farmers and stabilize the local market.
Frequently Asked Questions
What is the purpose of a trigger price?
The primary purpose of a trigger price is to protect domestic industries from being harmed by cheaper imports that are priced unfairly low. This mechanism seeks to maintain a level playing field for local producers.
How are trigger prices determined?
Trigger prices can be determined through multiple methods including historical price data analysis, cost of production metrics in the country of origin, and predetermined government or industry benchmarks.
What happens when an import falls below the trigger price?
When the price of an imported good falls below the trigger price, governments can impose trade restrictions such as tariffs, quotas, or even outright bans on the imported commodity.
Is the trigger point the same across all commodities?
No, trigger points are specific to each commodity and depend on various factors including the commodity’s market conditions, cost structures, and competitive landscape.
Are trigger prices used internationally?
Yes, trigger prices are used globally as a mechanism to protect domestic industries in various countries. However, the specific application and methodology can vary by country.
Related Terms
Dumping
The practice of exporting a product at a price lower than its market value in the country of origin, often intended to undermine competition in the import market.
Tariff
A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them less attractive to consumers.
Quota
A limitation on the amount of a specific product that can be imported into a country. Quotas are used to control the volume of imports and protect domestic industries.
Trade Restrictions
Measures such as tariffs, quotas, and subsidies imposed by governments to control foreign trade and protect domestic industries from foreign competition.
Online References
- Investopedia: Tariff
- World Trade Organization (WTO) - Trade Defense Instruments
- U.S. Customs and Border Protection - Trade Remedies
Suggested Books for Further Studies
- “International Trade: Theory and Policy” by Paul R. Krugman and Maurice Obstfeld.
- “The Law and Policy of the World Trade Organization” by Peter Van den Bossche.
- “Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump” by Joseph E. Stiglitz.
- “Trade Policy Review Mechanism” by the General Agreement on Tariffs and Trade (GATT) authors.
Fundamentals of Trigger Point/Price: International Trade Basics Quiz
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