Tariffs
Tariffs are taxes imposed on imported goods; they will increase the price of the good in the domestic market. Domestic producers benefit because they receive higher prices. The government benefits by collecting tax revenues. In the graph below, S0 and D0 represent the original supply and demand curves which intersect at (P0, Q0). St shows what the supply curve is with the introduction of the tariff. The market then clears at (Pt, Qt). Less of the good is produced, and consumers pay higher prices.

Figure 5.5: Effect of a Tariff on a Supply Curve

Quotas
Quotas are numerical limits imposed on imported goods. Consumers are harmed by quotas, while domestic and foreign producers benefit by receiving higher prices. In the graph below, the market initially clears at P0, Q0. The supply curve Sd+i0 represents the quantity supplied by both domestic and foreign producers before the imposition of the quota. D0 is the domestic demand curve. After the quota, the supply curve looks like Sd+i1. Both foreign and domestic producers receive higher prices while consumers lose out.

Figure 5.6: Effect of Quotas on the Supply Curve

Voluntary Export Restraints (VERs)
These restraints limit the quantity of goods that can be exported from the country to one or more of its trading partners. They are usually "voluntarily" negotiated so that quotas or tariffs are not imposed.

Exchange Rate Controls
Exchange rate controls set the exchange rate of a nation's currency above the market rate. This makes the nation's exports artificially expensive, which reduces the quantities of the nation's goods that foreigners are willing to buy. This means that the country's citizens have little foreign currency available to buy imported goods. With exchange rate controls, black markets usually exist where currency exchange occurs at a market rate. Exchange rate controls are declining in popularity, although some developing nations still use them.

"Hidden" Methods
Hidden methods of limiting imports include special regulations and licensing requirements that restrict imports. For instance, the Japanese government imposes special quality requirements on food to restrict food imports and protect Japanese farmers.

Trade Restrictions

Related Articles
  1. Investing

    What Is a Quota?

    In business, quota usually refers to the sales target for a salesperson or a sales team.
  2. Insights

    The Basics Oof Tariffs And Trade Barriers

    Everything you need to know - from the different types of tariffs to their effects on the local economy.
  3. Investing

    Tariffs

    Tariffs, or customs duties, are taxes imposed on foreign goods and services. In addition to providing a country with additional revenue, tariffs offer protection to domestic producers. Imported ...
  4. Investing

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  5. Investing

    Understanding Free Trade

    Free trade exists when nations can swap goods and services without the constraints of tariffs, duties or quotas.
  6. Investing

    Trade Bond ETFs Using Yield Curves

    Different types of yield curves provide important insights for trading bond-based securities.
  7. Insights

    Do Cheap Imported Goods Cost Americans Jobs?

    Flooding the market with cheap products can mean job losses and even market collapse - but dumping isn't as threatening as it seems.
  8. Investing

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  9. Insights

    Introduction To Supply And Demand

    Find out all about supply and demand and how it relates to your daily purchases.
  10. Investing

    Understanding the Inverted Yield Curve

    An inverted yield curve occurs during the rare times when short-term interest rates are higher than long-term interest rates.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center