IGCSE Business Studies - 6.2.1 The Importance of Globalization

Import Tariffs and Import Quotas

Globalization has led to increased international trade. Governments often use trade policies to influence the flow of goods across borders. Two common policies are import tariffs and import quotas. These policies aim to protect domestic industries but can have significant impacts on both the exporting and importing countries.

Import Tariffs

An import tariff is a tax imposed by a government on goods imported from another country. Tariffs are usually a percentage of the value of the imported goods.

Example: A country might impose a 10% tariff on imported steel.

Effects of Import Tariffs:

• Higher prices for consumers: Tariffs increase the cost of imported goods, leading to higher prices for consumers.
• Protection for domestic industries: Tariffs make imported goods more expensive, making domestic products more competitive. This can help protect domestic jobs and industries.
• Government revenue: Tariffs generate revenue for the government.
• Retaliation: Tariffs can lead to retaliatory tariffs from other countries, resulting in trade wars.
• Reduced choice for consumers: Tariffs can limit the availability of imported goods.

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 set period. Quotas limit the quantity of goods that can enter the country.

Example: A country might impose a quota of 50,000 units on imported cars per year.

Effects of Import Quotas:

• Higher prices for consumers: Quotas restrict supply, leading to higher prices for consumers.
• Protection for domestic industries: Quotas limit competition from foreign producers, protecting domestic industries.
• Reduced choice for consumers: Quotas limit the availability of imported goods.
• Potential for black markets: When demand exceeds the quota, black markets can develop where goods are sold illegally at inflated prices.
• Inefficiency: Quotas can lead to inefficient allocation of resources, as domestic industries may not be the most efficient producers.

Comparison: Tariffs vs. Quotas

The following table summarizes the key differences between import tariffs and import quotas:

Policy	How it works	Effect on Price	Effect on Domestic Industry	Effect on Consumer
Import Tariff	Tax on imported goods	Higher	Protected	Higher
Import Quota	Limit on quantity of goods imported	Higher	Protected	Higher, limited choice

In conclusion: Both import tariffs and import quotas are tools governments use to protect domestic industries. However, they both have drawbacks, including higher prices for consumers and potential for retaliation. The choice of which policy to use depends on the specific circumstances and the government's objectives.