Quota

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What is a 'Quota'?

A quota is a government-imposed trade restriction that limits the number, or monetary value, of goods that can be imported or exported during a particular period. Quotas are used in international trade to help regulate the volume of trade between countries. They are sometimes imposed on specific goods to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition.

BREAKING DOWN 'Quota'

Quotas are different than tariffs or customs, which place a tax on imports or exports in and out of a country. Both quotas and tariffs are protective measures imposed by governments to try to control trade between countries, but quotas focus on limiting the quantities of a particular good that will be accepted while tariffs impose a specific fee on those goods destined for entry into a country.

The fees associated with tariffs are designed to raise the overall cost to the producer or supplier seeking to sell goods within a country. Tariff fees increase the price of goods.

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.

Absolute quotas provide 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.

Risks Associated With Quotas and Tariffs

Highly restrictive quotas coupled with high tariffs can lead to trade disputes between nations and problems within nations. For example, in January 2018, President Trump imposed tariffs of 30 percent 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 relies on imports for 80% of its solar panel products.