Originally posted in May 2009.
This is a response to an article from about.com about the cons of import quotas, we decided to suggest a few pros and expand on some more cons. Now don’t get me wrong, the article brings up 3 smart points, but let’s not all hurl insults at import quotas. Here are some more cons and some pros.
Using his analogy of cricket bats (why not something more useful like barley? barley=beer, anyways,) if the government used an import quota they are in fact restricting the supply of bats domestically. That means the local producer benefits from less competition, higher prices for his goods, but the consumer will in turn pay more.
To piggyback on Mike’s article regarding corruption in the importer’s office, I will use an economic term and say creating arbitrary licencing may permit inefficient producers to export their goods here, hence higher price and poor quality goods.
Response to demand domestically can be met with tariffs but not import quotas. If it’s Christmas and everyone wants a cricket bat and there is limited domestic production then many consumers will go home batless since the quota can’t change fast enough to reflect the demand.
However, what about some pros? Well what about world price? The purpose of the quota and the tariff is to make the domestic price more attractive for producers. (It increases domestic price of goods.) However, if world prices tend to go up and down more than domestic demand and supply, and import quota will keep the price more stable than a tariff. (Don’t bring up variable levies at this point….)
This was a brief addition to the about.com article and displayed a few more cons and a pro about import quotas. Let’s just all use the TRQ (tariff rate quotas) and stop arguing.