Tariffs and Quotas (Foreign Trade)

Instruments used by governments to regulate foreign trade

Foreign Trade (Importing, Exporting)
Foreign Trade

Tariffs and quotas are instruments used by governments to regulate foreign trade, each operating through different mechanisms and exerting distinct effects on markets.

Tariffs are taxes levied on imported goods with the primary aims of protecting domestic industries, generating government revenue, or responding to unfair trade practices. They come in two main forms:

Specific tariffs: A fixed charge per unit of imported goods (e.g., $5 per ton).
Ad valorem tariffs: A percentage of the good’s value (e.g., 10% of the import price).

Tariffs increase cost of imported goods, making domestic alternatives more competitive. While this can stimulate local production, it may also lead to higher prices for consumers and Business. For instance, a 20% tariff on imported steel raises input costs for industries like construction and manufacturing, potentially increasing prices throughout the supply chain. Moreover, tariffs can trigger retaliatory actions and escalate into trade disputes.

A notable example is the U.S.–China trade conflict of 2018–2019, where reciprocal tariff increases disrupted global supply chains and heightened economic uncertainty.