Tariffs and quotas both raise the price of foreign goods to domestic consumers. What is the difference between the effect of quotas on the following?
A. the domestic government
B. foreign producers
C. domestic producers.
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The imposition of tariffs and introduction of quotas makes goods that are imported more expensive and limits the total amount of any good that can be imported.
For the domestic government it provides a way to boost production by local industries which increases their revenue and prevents them from laying off people. This decreases unemployment, increases income and ultimately improves the image of a government which in a democracy is a definite advantage to the ruling government in the subsequent elections.
Foreign producers are adversely impacted by tariffs as their goods become costlier which reduces the number of goods they can sell. Quotas also restrict the total number of products that they can sell in the country.
Domestic producers are benefited by tariffs as they can compete with imported products as the difference in price is reduced. Quotas ensure that after a certain quantity of goods have been imported, the domestic producers no longer have to face competition from imported goods.
First of all, please note that a subsidy (while perhaps protectionist) is not a tariff or a quota.
Tariffs can help domestic governments by raising tax revenues. If they do in fact create more jobs in the country, they help raise tax revenues in that way as well.
Both tariffs and quotas harm foreign producers. They reduce the amount of exporting those countries can do.
Trade barriers help domestic producers UNLESS those producers rely on exporting or on imported goods. If they rely on imported goods (to use in their product, for example) their costs go up. If they rely on exporting, they may lose if other countries impose tariffs on their country in retaliation.
Tariffs and quotas are one way in which a government is able to skew economics to favour domestic products and to protect their domestic market from cheaper imports. One great example of this is the way in which America pays a colossal sum each year to subsidise various domestic industries such as cotton farming to keep it competitive (which it actually isn't) and to protect it from cheaper imports. This places foreign governments at a massive disadvantage, because even though they are able to produce more cotton more cheaply, they are unable to make a profit due to tariffs and quotas imposed by the US government.
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