Tariffs and Quotas

Tariffs and Quotas

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Tariffs and Quotas

Tariffs refer to the tax levied on imported or exported goods. Quotas are limitations on the entire value of imported goods (Amacher & Pate, 2013). Tariffs and quotas are essential features of cross-border trade. These policies offer protection to domestic industries considered to be essential for any economy. They also generate revenue and also perform punitive functions in case of trade alterations. Tariffs and quotas ensure the local prices of goods exceed world levels. Therefore, governments and producers in the importing country are the major beneficiaries of tariffs and quotas. Due to these trade policies, domestic industries receive massive profits. Consumers are negatively affected when tariffs and quotas are imposed on imported goods. This is because the two policies cause prices of goods to rise. A rise in prices is mainly because governments have to pay high taxes to acquire the goods from exporting countries.

The effects of tariffs differ from the effects of quotas. First, tariffs are advantageous for many governments because they generate revenue. Quotas, on the other hand, may or may not generate revenue depending on how they are directed. Quotas administered by way of import rights generate revenue while those offered on first come first basis does not generate any form of revenue. Quotas cause greater alterations on the economy compared to tariffs. This occurs because quotas cause a gradual rise in price while tariffs cause prices to remain constant. Quotas greatly restrict import competition among industries. This protective policy limits the degree of competition to a fixed amount. On the contrary, tariffs do not limit import competition to any particular level.

Small countries should make use of tariff’s other quantitative restrictions (quotas). Tariffs do not distort the economy as much as quotas. They also have a revenue generating function which is significant in developing the nation economically. Finally, it is less tasking to negotiate a tariff reduction than a quota drop.

References

Amacher, R., & Pate, J. (2013). Microeconomics principles and policies. San Diego, CA: Bridge point Education.