Terms Beginning With 'a'

Anti-Dumping Duty

What is Anti-Dumping Duty?

An anti-dumping duty is an import restriction tool that can be imposed on a good to stop its import from a particular country or in a particular product category. This duty can be levied on a country for a specific good when the country is suspected of exporting that good at a cheaper rate than what it is sold for in its local market.

A dumping claim is followed by an anti-dumping investigation.  Dumping may negatively impact the domestic producers because they are bound to compete with the lower prices of the imported good. In the wake of growing protectionist sentiments amongst countries, Anti-Dumping duties stand as a powerful tool.

Apart from Anti-Dumping duties, countervailing duties and a few other remedies like safeguards can also be used when a dumping claim is made.

Why is there a need to implement Anti-Dumping duties?

Anti-dumping duties are implemented with the intent of protecting the domestic markets. When a foreign country dumps a good into a domestic country at a cheaper rate, there are high chances of people preferring the imported good rather than domestic produce. This can be harmful in two ways:

  • Trade Balance: Increased imports could disrupt the trade balance and can cause a deficit in the Balance of Payments. A BOP deficit can cause the economy to suffer in many ways, including raising the debt With exports remaining at the same level, increased imports are not desirable.
  • Competitiveness of domestic producers: Local industries are affected if a cheaper foreign product of similar quality is available in the market. Domestic producers would not be able to sustain if they were to offer such low prices as offered by these foreign producers. Therefore, they are not able to compete with these foreign goods. The government would want to protect domestic producers by imposing an anti-dumping duty on the concerned good.

How are anti-dumping duties levied?

An anti-dumping investigation reveals which areas are affected and which countries are dumping the goods. These goods are then taxed which often pushes their prices to more than double.

The duties levied can be imposed in ad-valorem form (as a percentage of the price of the good), as a specific duty (implemented per unit of quantity) or as a combination of both.

Apart from anti-dumping duties, countervailing measures can also be adopted. These are aimed at offsetting the subsidies given to the foreign producers by their government.

Another measure is the implementation of safeguard measures. These measures are used to protect a specific industry from a sudden influx of imports. These are industry-centric provisions that are permissible by the WTO.

What are the issues associated with Anti-Dumping Duties?

Though anti-dumping duties have a protectionist intent behind them, the World Trade organisation tries to limit the usage of these duties. This is so because there are rising concerns about global trade disputes and their consequences. Some countries might try to take unfair advantage of the benefits offered by anti-dumping duties.

It is quite plausible that a country might try to protect the domestic producers by hurting imports rather than by other reasonable methods. Anti-dumping duties allow countries to exercise the right to curb imports by making them more expensive for domestic consumers.

WTO has always advocated for fair trade policies. Thus, any policy that provides benefits to a country’s domestic producers at the cost of foreign producers’ exports, needs be implemented carefully and with proper regulation.

Apart from hurting foreign producers, anti-dumping duties may also hurt domestic consumers. If the domestic produce is not homogenous or of similar quality as the foreign produce, then the domestic consumer would have no choice but to go for the more expensive foreign good. This would not solve the problem and would be more harmful than beneficial.  

Anti-dumping duties move the international trade markets further away from the WTO’s principle of free-market creation.

What are the alternatives to Anti-Dumping duties?

It is safe to say that Anti-dumping Agreements cause variations in the stream of exports and imports between a domestic country and the accused trading partner. However, these variations are subject to change based on the bilateral relationships between the two countries, the level of efficiency of exporting country as well as the accessibility of other countries to the importing market.

However, anti-dumping duties may not drive down competitiveness levels of foreign countries that have an efficient production base. These countries might find another market and start exporting there.

On the domestic front, an anti-dumping duty may not always be enough to offer price competitiveness to home producers. An Anti-Dumping Agreement coupled with a constant push in the efficiency of the domestic produce in terms of technology, cheap labour as well as welcoming FDIs and strong investments in the affected the sector can be a better way to fully utilise the imposed duty.

It refers to the compelled payment of a financial duty through an employee?s pay and is an automatic withholding. It can be either voluntary or involuntary and is deemed to be the last option of a lender to receive repayment from a borrower.

What is Wall Street? Wall Street, the Mecca of Financial Transactions in the US, is located in Lower Manhattan City of New York State. ‘Wall Street’ has become another name for financial elitism in the US. Wall Street houses the two largest stock exchanges in the world by market capitalisation, New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ). Wall Street is also home to various other stock exchanges, brokerage markets and banking headquarters. Notable among them are the New York Mercantile Exchange, the New York Board of Trade, New York Futures Exchange (NYFE), Goldman Sachs, etc. Brief History of Wall Street: The term ‘Wall Street’ is said to have originated from the Dutch word ‘de waalstraat’ much earlier in the 17th Century, when New York was a part of New Amsterdam and an actual wall existed at the location during 1685-1699. During that time, this area was used as a slave trading market as well as a securities exchange site. However, after the independence of the US, and in the early 19th Century, it became a site for both residential as well as business hubs. However, slowly and steadily, the business outpaced the residential part and Wall Street became the hub of all financial transactions in the US. It was only during the 20th Century that many skyscrapers came into existence on this street, the tallest of them being 40 Wall Street, which is also known as the Trump Building. Wall Street is now one of the most famous tourist attractions in the US and the Wall Street Bull attracts many tourists every day for a photo opportunity. The iconic bronze sculpture represents the aggressive financial optimistic environment and a symbol of prosperity. Image Source: Shutterstock How does Wall Street work?  Wall Street houses businesses that collectively control trillions of dollars and move the markets every single day. As stated earlier, Wall Street has become a symbol of all financial transactions in the US. Wall Street functions to provide a platform for institutions to raise legitimate capital funding. The process is conducted in a centralised trading arena where those wanting to generate funds are provided with a medium of connection. The trading on Wall Street can happen in various forms - be it by issuing bonds or selling the ownership in the businesses through stocks. The government also regularises the capitalism process happening on Wall Street daily. These regulators provide the money to the productive users in a very smooth manner. Secondly, the financial hub also provides a secondary market to businesses to find investors, in order to raise capital. This bridge helps the markets move towards success. Moreover, Wall Street also houses firms which assist the investors so that they can manage their primary profession or activity. The outsourcing procedure is conducted via the professionals referred to as brokers or dealers and are registered investment advisors. They are bound by a fiduciary duty and act towards their clients’ best interest. These advisors are also asset management companies. Usually, the high earning individuals who are willing to invest and grow their wealth, take the assistance of these asset management companies and focus on generating more money for them. Wall Street can also be considered as a repository for investments across various securities. Wall Street is most commonly known for facilitating buying and selling shares. Individual investors trade the shares of outstanding stocks via their retirement and brokerage accounts. These investors are interested in the daily fluctuations of some of the major indices. Dow Jones Industrial Average and S&P 500 stock market indices have big players and investors trading every day.  Image Source: Shutterstock What is the role of market makers on Wall Street?  The trading revolves around the market makers at Wall Street and they usually facilitate the action in the market and earn a fee for providing their services. A lot many factors decide the movement of prices of traded securities. A mix of factors like sector news, management changes, company performances etc. decide if the prices are going up or down. However, market makers are also one of the biggest factors which have an impact on the share prices. There are individual professionals on the exchange floors facilitating these factors. The electronic communication networks are also part of market makers. Each transaction conducted on the securities exchange requires a party to take the opposite side. 

What is a tariff? A tariff is a tax levied on foreign goods and services imported into a country. Tariffs make goods and services more expensive and thus, consumers shift to the domestic alternatives. Tariffs are usually imposed as an economic tool to improve the balance of trade as they decrease the imports. They are also targeted at protecting the domestic producers from competitive foreign goods. Tariffs can also be imposed on exports of goods and services, although that is seldom the case. It is done to discourage exports of certain goods and services. Tariffs are also used as a political tool. Governments may sometimes favour certain countries with whom they have political ties, while they may try to limit trade with other countries owing to technological, economic and political spats. How are tariffs levied? Tariffs have three broad types based on how they are levied: Ad-Valorem Tariff: Ad valorem taxes are the taxes that are levied as a fraction of the value of goods and services. They are represented as a percentage of the total value of imports and are proportionate to the value of imports. Specific Tariff: Specific tariffs are levied per unit of quantity. Specific duties are flat fees applied over a specific quantity of goods and services. For instance, a tariff of $10 levied per 20 kgs of wheat is an example of a specific tax. This tax is proportionate to the quantity of the imported good. Compound Tarifs: Compound tariffs are a mix of both specific tariff and ad valorem taxes. For instance, a tariff that has a specific tax up to a certain amount followed by an ad valorem tax afterwards is an example of a compound tariff. What impacts can a tariff have? Import tariffs can be beneficial to an economy in many ways. As imports become expensive, consumers shift towards domestic goods. This competitive advantage enjoyed by domestic goods translates into increased production along with higher profits to domestic firms. Thus, as firms start gaining increased profits, they expand and hire more workers. This increases the overall employment in the economy. Therefore, tariffs affect two major areas positively: the domestic competitiveness of firms as well as the employment rate in the economy. Tariffs can sometimes also be implemented to protect the domestic economy from infiltration of foreign produce. Sometimes, highly developed nations impose import duties to safeguard their economies from dumping of foreign goods. This kind of tariff is called an anti-dumping duty which is used when a country is suspected of exporting a good at a rate which is lower than the rate at which the same good is sold in their domestic markets. How does a tariff work? Consider the following diagram: In the figure above, point O represents the situation of autarky or a closed economy that has no trade with foreign countries. Now consider the effects of the economy opening its borders to international trade. The international price of the same good is Pw, which is significantly lower than Pd, the domestic price. Under the assumptions of free trade and a small domestic economy, the domestic prices would also become equal to Pw. At price Pw, the domestic demand is Q4 while the domestic supply is Q1. The difference between the two is met by the quantity of imports. The lower price of the imports would make them preferable to the domestic produce. However, when a specific tariff is introduced on the imports, the price of the imported good rises to Pw + T. This makes the good more expensive and thus reduces its imports into the economy from Q1Q4 to Q2Q3. Who are the winners and losers when a tariff is implemented? The welfare implications of a tariff are a subject of popular debate. Many theorists argue that tariffs bring distortions into the economy. The red box ABCD represents the revenue earned by the government through the tariff. The line AD represents the value of tax while the link DC represents the amount of imports. The domestic prices would rise to Pw +T when the tariff is introduced. As a result, domestic consumption falls to Q3, while the domestic produce increases to Q2. Therefore, domestic producers gain from a tariff. The supply has increased from Point E to point A. The demand has come down from point F to point B. The government also gains a lumpsum amount equal to AD multiplied with DC, which is the tariff revenue. Thus, both producers and the government are gaining from a tariff. However, the entire process is giving rise to a deadweight loss which is represented through triangles AED and BCF, both coloured in blue. These two triangles are not utilised anywhere and are lost in the process of tariff implementation. Thus, there is a welfare loss associated with tariffs, that is paid by the consumers. The consumers could afford a greater amount of the good at price Pw. However, when prices are increased to PW + T, part of welfare lost by consumers goes to producers, and a part of it goes to the government. But triangles AED and BCF are lost in this process. Therefore, tariffs cause a distortion in a free market and can even lead to many adverse economic repercussions. Thus, for a small economy, tariffs need to be implemented with proper regulation and without any intent of harming any country’s producers. Rather, the intent should be to protect the domestic producers. The same might not be true for a large economy as any protectionist intent by one country can trigger a trade war between several countries as seen in a few past scenarios.

What is Trade War? The term trade war is applied when two nations proceed at war with each other, not through military operations but by imposing tariffs and quotas on imports from a trading partner. The term is commonly used worldwide as many nations are continually competing with each other over the supremacy of the economy. These restrictions are implemented to harm the rival country financially. The foreign country retaliates with similar types of trade sanctions which is referred to as trade protectionism. Under the protectionist policies, the government encourages the consumption of domestic products over imported goods. The trade barrier imposition damages trading partners' economies and devalue its domestic currency. Image Source - ©Kalkine Group 2020 What happens when countries indulge in the trade war? Trade war begins when a nation wants to protect their jobs and domestic industries. They may do this by an increase in import tariffs or imposing restrictions in trade. This may lead to a boost in domestic economy and reduction of dependence on the foreign country for goods and materials. As the products from the foreign country stop penetrating the market or its demand are lowered because of higher prices, the local products see a growing request from domestic customers. If the local business grows because of such policies, it results in the ever-increasing need for jobs as well; however, in the long run, trade war bequeaths its impacts on both the countries. The consequences of a trade war can be as severe as depressing economic growth and triggering inflation as the prices of imports increased because of the tariffs. A phrase Beggar-thy-neighbor policy refers to this situation when an economic policy is implemented to benefit the country while harming the country's neighbours or trading partners in international trade. Such policies are ideated to protect the domestic economy while reducing the dependency on imports and increasing exports. Adam Smith, a Scottish philosopher who is considered to be a founder of modern economics, referred to the beggar-thy-neighbour implementation in the trade war. He criticised mercantilism; a dominant economic system prevailed in Europe from the 16th to the 18th century. Economists soon concluded that such policies could trigger trade wars and push countries involved in autarky - a system of economic self-sufficiency and limited trade. A state like this is hugely detrimental for a country's economic growth. Image Source: Kalkine Group Image What are the advantages and disadvantages of the trade war? Advantages: Bolsters Domestic Business: The most important advantage a trade war offers is that the policies aid companies to flourish. When the government enforces tariffs on imports, these products become expensive. The similar domestic product in the market is, however, available at a competitive price. The buyers would prefer to obtain local goods compared to the imported product, which leads the domestic companies to grow and prosper. Once the company becomes a prominent player in the local region, it has a higher possibility to expand internationally and build a more influential company. Diplomatic Stand: Another benefit trade war provides is that if one country is imposing tariffs and restrictions policies on another country and the country in return is not offering any retaliation then in the international arena, the government will be considered weak. Diplomatically its reputation will be a vulnerable nation who does not retaliate to such grave threats. Countries usually retaliate if such a situation arises in order to safeguard its international status. Checks Wrong Trade Practices: Not all countries trade in an honest manner. Some dominating countries dump their inferior products to other countries. The consumers of the nation stand at risk by buying low-quality goods. So, when the trade war occurs, it ensures that such ill practices are restrained and kept in check. Disadvantages: Increases Inflation A biggest disadvantage trade war has is that it increases inflation exponentially. This tariff war tends to create an artificial shortage of goods, which leads to the surge price of goods—ultimately causing inflation which then lowers the standard of living for both countries involved in the trade war. Creates Strains between Countries: Once the trade war is started, it has a tendency to continue longer. It does not just damage the economic backbone of the countries involved, but diplomatically weaken the relationships. So instead of reasonably talking terms, the countries indulge in tariff and restrictions wars. Such consequential situations hurt the cultural connections as well, which the countries could be nurturing for many years. In the long run, trade war shows its repercussions by incapacitating both countries, if not equally but on similar levels. Increases Domestic Monopoly: Because trade war provides a suitable environment for the local companies to flourish, in the long run, both involved countries can eventually become big and act dominant. The lack of competition from the international market renders a safe haven to create a monopoly. With both country's companies behaving influential in their space, the customers have greater chances to suffer from higher prices and no alternative. Because of multinational companies, domestic companies always feel threatened by healthy competition and provide the customer with good quality goods at competitive rates.

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