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.
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
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
### What is a trigger price?
- [x] A predetermined price level at which imported goods trigger trade restrictions.
- [ ] The maximum price at which imported goods can be sold in a country.
- [ ] The average market price of a domestically produced commodity.
- [ ] A benchmark price for setting domestic product pricing strategies.
> **Explanation:** A trigger price is a specified price level for imported goods, below which trade restrictions are automatically applied to protect domestic markets.
### Who establishes the trigger price for an imported commodity?
- [x] Governmental agencies
- [ ] International trade organizations
- [ ] Private companies importing the commodity
- [ ] Consumer protection organizations
> **Explanation:** Governments typically set trigger prices for imported commodities to protect domestic industries from the adverse effects of unfair pricing and dumping.
### What happens if the imported goods' price falls below the trigger point?
- [x] Trade restrictions such as tariffs or quotas are imposed.
- [ ] The imported goods are banned outright.
- [ ] The goods can no longer be sold.
- [ ] The selling company faces penalties from international trade bodies.
> **Explanation:** When imported goods fall below the trigger price, the importing country may impose tariffs, quotas, or other trade restrictions to protect its domestic market.
### Is the trigger price the same across all products?
- [ ] Yes, there is a universal set trigger price for all imported commodities.
- [ ] Yes, it applies uniformly to all industries.
- [x] No, trigger prices are specific to each commodity.
- [ ] No, it only applies to agricultural goods.
> **Explanation:** Trigger prices are specific to each commodity and depend on various factors like market conditions, production costs in the country of origin, and prevailing competitive landscapes.
### How is the trigger price typically calculated?
- [ ] Based on consumer demands.
- [x] Based on historical price data and production costs in the country of origin.
- [ ] Based on random government surveys.
- [ ] Based on domestic market prices of the same commodities.
> **Explanation:** The trigger price is usually determined using historical price data, production costs in the country of origin, and other relevant industry benchmarks.
### What is one possible outcome of the trigger price mechanism being activated?
- [x] The imposition of tariffs on the under-priced imported goods.
- [ ] Free trade agreements become void.
- [ ] Devaluation of the importing country's currency.
- [ ] Increase in exports of the imported goods.
> **Explanation:** When the trigger price mechanism is activated, tariffs or other trade restrictions often get imposed to protect domestic industries from unfair competition.
### Which body often has the final say in setting and enforcing trigger prices and related measures?
- [x] National Government or its relevant trade regulatory agency.
- [ ] International Monetary Fund (IMF)
- [ ] World Health Organization (WHO)
- [ ] United Nations (UN)
> **Explanation:** The national government or its relevant trade regulatory bodies often set and enforce trigger prices and related protective measures.
### What role do international trade organizations like the WTO play with respect to trigger prices?
- [ ] They set trigger prices for all member countries.
- [x] They provide guidelines but individual nations implement their own rules.
- [ ] They enforce trigger prices for developing nations only.
- [ ] They monitor but have no influence over trigger price policy.
> **Explanation:** International trade organizations like the WTO provide guidelines and frameworks for trigger prices, but individual nations are responsible for setting and enforcing these prices based on their own policies.
### Why might a country set a trigger price for an imported commodity?
- [ ] To increase the import of goods.
- [ ] To balance the national budget.
- [ ] To drive foreign trade imbalance.
- [x] To protect domestic industries from unfairly priced foreign competition.
> **Explanation:** A country sets a trigger price to protect its domestic industries from unfairly low-priced imported goods which could harm local businesses and industries.
### Which of the following is NOT a typical trade restriction that might be applied when a trigger price is breached?
- [ ] Imposing tariffs
- [ ] Setting import quotas
- [x] Subsidizing exporters
- [ ] Banning the import of goods
> **Explanation:** While imposing tariffs, setting quotas, and potentially banning imports are common restrictions, subsidizing exporters is not a trade restriction directly tied to the trigger price mechanism.
Thank you for exploring the detailed nuances of the “Trigger Point, Trigger Price” term and tackling our instructive quiz questions. Pursue more knowledge to stay ahead in international trade dynamics!
