Question

what happened if US imposes higher tariffs and very strictive quotas ? Explain your reasoning ?

Answer 1

A tariff is a tax on imports.It is imposed by the goverment on the imports of a particularly. Quota is a quantity limit.It restricts import of commodities physically.Tariffs and quota are both ways for goverment to protect domestic industries especially infant industries.Both of them leads to higher prices of goods and fewer quantity of imported goods to consumer.Because of higher prices consumers buy fewer goods.The increasedproduction and highe price domestic increases in employment and consumer spending.

Quotas and tariffs are artificial trade barriers, raise prices and reduce quantity of goods and services for U.S bussiness which result in lower income, employment and economic output.Tariffs can increase the cost of intermediate goods that use those inputs and reduces private sector output.This would result in lower incomes for both workers and the owners of capital.Higher consumer prices due to tariff would reduce after tax value of both labour and capital.Because these higher prices would reduce the return to labour and capital,they would incentivize Americans to work and invest less, leading to lower output.The U.S dollar may appreciate in response to tariffs,offsetting the potential price increase on U.S consumers.However the more valuable dollar would make it more difficult for importers to sell the goods on the global market,resulting in lower revenues for exporters.This would also result in lower U.S output and income for both workers and owners of capital reducing incentive for work and invest.

Import quotas of U.S control the amount or volume of various commodities that that can be imported into U.S during a specified period of time.Quotas are established legislation,Presidential Proclamations orExicutive Orders.For example the U.S may limit the number of Japanese car imports to 2 million per year.Quota will decrease imports, and help domestic suppliers.However they will lead to higher prices for consumers,a decline in consumer welfare and could lead to retaliation with other countries placing tarrifs on our imports.