Posted in Finance, Accounting and Economics Terms, Total Reads: 491
Definition: Tariff War
Tariff War usually refers to the war in trade tariffs that countries levy upon each other so as to discourage exports from one another and create trade benefits for self. Tariff Wars are also referred to as “customs war”.
Usually tariff wars are common among countries that have political hostilities with each other. US and China, India and Pakistan, have imposed tariffs on each other over time, so as to gain trade advantages for self. Through tariff wars, the competing countries raise tariffs on the exported goods of the other country. For example, US will raise tariff on goods exported from China and China will raise tariff on goods exported from US. This acts as a disincentive for the importers to source material from the country in contention as their sourcing cost increases.
Tariff Wars are generally used as an indirect signal by a country to express discomfort with the political action of the other country. Such wars can influence the countries to change their political stand so as to gain back the trading volume.
Tariff War By Companies:
Sometimes companies also indulge in forms of tariff war. Such wars are most prevalent in the industry of telecom and FMCG where products are commodities and are not highly differentiated. In such a scenario, companies try hard to capture the entire customer base by just competing on lower prices. Competitive price wars sometimes result in extreme cases of price slashing that can even lead to companies lowering prices to the tune of actual cost of production.