Question

Q3. Which is a more restrictive trade barrier—an import tariff or an equivalent import quota? Why did the U.S. government in 1982 provide import quotas as an aid to domestic sugar producers?

Answer 1

Import quota places restriction on the quantity of goods that can be imported to a country in a specific period. Whereas import tariff is a duty or tax imposed by the government of the importing country on the imported goods and as a result of which the price of imported goods rises in the importing country. Import quotas are considered to be more restrictive than import tariffs because import quota places absolute restriction on the quantity that can be imported whereas import tariff only raises the price of imports. Under import tariff it is upto the consumers of the importing country to decide whether to purchase imported goods at high prices. The effects of import tariff is not as strong as import quota for an exporting country. Even if the exporting country is highly efficient and produce goods at very low price, import quota places restriction on the quantity that it can export and thereby limiting the amount of goods sold. For necessary commodities import tariff will not be effective. Even if price increases due to import tariff consumption of such commodities will not be reduced and will not protect domestic industries. Whereas if quotas are enforced only a limited quantity of imports arrive in the domestic market and thus protect domestic industries better. In 1982 domestic sugar producers in the U.S faced competition from international trade as domestic producers were able to meet only about half of the demand requirement and the cost of production for domestic producers were high compared to international market. The U.S government inorder to protect domestic sugar producers imposed import quota. As a result of which the quantity of sugar that is imported to U.S reduced. It reduced the quantity of sugar supplied in the market and thereby resulting in higher price for sugar and better revenue for domestic sugar producers. It also helped the government to save millions of dollars provided under the price support program for domestically produced sugar.