Import quota – definition and meaning

An import quota is a restriction that a government places on the quantities of a particular product that can come into a country. The import quota is typically over a specific period. Some quotas are for a particular product or commodity, while others are for countries. In other words, a government, rather than targeting something, may target a country.

The quota targets not only products but sometimes services too.

Sometimes, a seemingly insignificant import quota can lead to a serious and damaging trade war. The exporting country may respond with a tit-for-tat import quota, which then leads to further quotas.

Eventually,  before we know it, the whole thing escalates into a full-scale trade war.

Dictionary.com has the following definition of the term:

“A governmental restriction on the quantities of a particular commodity that may be imported within a specific period of time, usually with the goal of protecting domestic producers of that commodity from foreign competition.”

Sometimes, import quotas form part of a combination of measures that we call import relief. Import relief may also include subsidies and special tax concessions.

Import quota – for protection

Countries have two ways to protect themselves from imports: 1. Import duties, i.e., taxes on goods coming in from abroad. We also refer to them as tariffs. 2. Import quotas, i.e., a limit on how much can come in.

Import Quota
Just a few decades ago, China was in favor of import quotas and tariffs while the USA was not. Today, however, it appears to be the other way round.

Governments introduce import quotas for one or a combination of reasons:

  • To protect a domestic industry. The domestic car industry, for example, may be in decline because of cheap imports. By restricting how many cars can come in, domestic producers have a better chance to recover.
  • In response to a protectionist move, i.e., a tit-for-tat response. The other country may have introduced its own import quota or import tariff.
  • To protect citizens. Perhaps the import is something that is bad for the health. The government decides to restrict imports to limit the damage to human health.
  • A punishment for something the other country did. Maybe the other country invaded its neighbor. A group of the neighbor’s allies got together to punish the aggressor by targeting trade.

Import quota – trade balance

When imports exceed exports, a country has a negative trade balance, i.e., it has a trade deficit.

Having a trade deficit is undesirable. If the government introduces an import quota on a major product or service, it may alter its trade balance.

In other words, it may reduce the negative trade gap. In fact, it might even turn the trade deficit into a trade surplus.

A trade surplus exists when a country exports more than it imports. Every government aims to achieve a trade surplus.

The United States and the United Kingdom have had trade deficits for several decades.

Video – Import quota

In this video, Mecham Dee explains the graphical analysis of an import quota. The graph shows part of the international trade of a nation that participates in the competitive world market.