Modern people with dwarfism (like the most common achondroplasia form) call themselves either dwarves, or the more widely used term “Little People”. So what would they be called in Middle Earth? Dwarf was already taken. Hobbit is indeed a halfling, or “half-sized” human, but they do not share the same physical properties as a modern Little Person. Would an actual dwarf be angry when a non-bearded Little Person came running in to their mine? What if said little person refused to look for gems? Would the dwarves cast them out? Hobbits were said to be good tree climbers, but I have never seen a Little Person in a tree, not even on “Little People Big World”.
Hobbits prefer to be barefoot, but Little People enjoy wearing little shoes. If a human had a baby that turned out to be a Little Person, would her husband assume she had cheated with a dwarf? What would happen if a dwarf or hobbit had a baby with modern dwarfism?
If a Little Person drank the ent’s water, would they grow really tall but keep the same proportions? Would they still call themselves a “Little Person”? Sadly Tolkien never saw fit to flesh out this portion of his world. It appears we will never have important questions like this answered.