effects of import tariffs and import quotas on businesses

Resources | Subject Notes | Business Studies

6.2.1 The Importance of Globalisation: Effects of Import Tariffs and Import Quotas on Businesses

Globalisation refers to the increasing interconnectedness and interdependence of countries through the exchange of goods, services, capital, and information. This section examines the impact of government interventions like import tariffs and import quotas on businesses operating in a global market.

Import Tariffs

An import tariff is a tax imposed by a government on goods imported from other countries. These are typically applied to make imported goods more expensive than domestically produced goods.

Effects on Businesses:

  • Increased Costs for Businesses Using Imported Components: Businesses that rely on imported raw materials or components will face higher input costs due to the tariff. This can reduce their profit margins or force them to increase prices for consumers.
  • Reduced Competitiveness for Businesses Importing Goods: Businesses that export goods to countries with tariffs will find their products more expensive for foreign buyers, potentially reducing their export volume and market share.
  • Potential for Domestic Industry Protection: Tariffs can protect domestic industries from foreign competition, allowing them to maintain market share and potentially increase production.
  • Consumer Impact: Tariffs often lead to higher prices for consumers as businesses pass on the increased costs.
Effect Description
Increased Input Costs Higher prices for imported raw materials and components.
Reduced Export Competitiveness Increased cost of goods for foreign buyers.
Domestic Industry Protection Reduced foreign competition for domestic producers.
Higher Consumer Prices Increased cost of imported goods for consumers.

Import Quotas

An import quota is a quantitative restriction on the amount of a specific good that can be imported into a country during a particular period. Quotas directly limit the quantity of imports.

Effects on Businesses:

  • Limited Market Access for Businesses Importing Goods: Businesses seeking to import goods into a country may find their access limited by the quota, potentially reducing sales and profitability.
  • Increased Prices for Consumers: When import quotas restrict supply, prices for the imported goods tend to rise due to limited availability.
  • Potential for Domestic Industry Benefit: Quotas can benefit domestic industries by reducing competition from imports and potentially increasing their production and sales.
  • Reduced Choice for Consumers: Quotas can limit the variety of goods available to consumers.
Effect Description
Limited Market Access Reduced opportunity to sell goods in the importing country.
Higher Consumer Prices Increased prices due to limited supply.
Domestic Industry Benefit Reduced competition from foreign producers.
Reduced Consumer Choice Fewer imported goods available to consumers.

Conclusion: Both import tariffs and import quotas are government interventions that significantly impact businesses involved in international trade. While they can offer protection to domestic industries, they often lead to higher costs for businesses and consumers, and can reduce the overall efficiency of the global market.

Suggested diagram: A simple diagram showing an arrow representing imports being blocked by a tariff or quota, with labels indicating the effects on both the importing country's businesses and consumers.