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.
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.