What Is a Quota?
A quota is a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period. Countries use quotas in international trade to help regulate the volume of trade between them and other countries. Countries sometimes impose them on specific goods to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition.
Quotas are different than tariffs or customs, which place taxes on imports or exports. Governments impose both quotas and tariffs as protective measures to try to control trade between countries, but there are distinct differences between them. Quotas focus on limiting the quantities of a particular good a country imports or exports, whereas tariffs impose specific fees on those goods.
Governments design tariffs to raise the overall cost to the producer or supplier seeking to sell goods within a country.
Quotas are more effective in restricting trade than tariffs, especially if domestic demand for something is not price-sensitive. Quotas may be more disruptive to international trade than tariffs. Applied selectively to various countries, they can be utilized as a coercive economic weapon.
- Countries use quotas in international trade to help regulate the volume of trade between them and other countries.
- Within the United States, there are three forms of quotas: absolute, tariff-rate and tariff preference level.
- Highly restrictive quotas coupled with high tariffs can lead to trade disputes and other problems between nations.
Import Quota Regulatory Agencies
The U.S. Customs and Border Protection Agency, a federal law-enforcement agency of the U.S. Department of Homeland Security, oversees the regulation of international trade, collecting customs and enforcing U.S. trade regulations. Within the United States, there are three forms of quotas: absolute, tariff-rate and tariff preference level.
An absolute quota provides a definitive restriction on the quantity of a particular good that may be imported into the United States, although this level of restriction is not always in use. Tariff-rate quotas allow a certain quantity of a particular good to be brought into the country at a reduced duty rate. Once the tariff-rate quota is met, all subsequent goods brought in are charged at a higher rate. Tariff preference levels are created through separate negotiations, such as those established through Free Trade Agreements (FTAs).
Goods Subject to Tariff-Rate Quotas
Various commodities are subject to tariff-rate quotas when entering the United States. This includes, but is not limited to, milk and cream, cotton fabric, blended syrups, Canadian cheese, cocoa powder, infant formula, peanuts, sugar and tobacco.
Real World Example
Highly restrictive quotas coupled with high tariffs can lead to trade disputes and other problems between nations. For example, in January 2018, President Trump imposed 30% tariffs on imported solar panels from China. This move signaled a more aggressive approach toward China's political and economic stance, but it also was a blow for the $28 billion solar industry in the United States, which imports 80% of its solar panel products.