Tariff vs Quota
We keep on hearing words like tariffs and import quotas every now and them in the news. The words are important for manufacturers inside a country as these measures help them establish themselves and protect against foreign products that may be cheaper or better quality. Because these financial tools are used by the government, to give relief to domestic manufacturers, many people think of tariff and quota to be the same. However, despite serving the same end, the two differ in their ways that will be highlighted in this article.
Tariffs are taxes imposed on imported goods, to desist importers from importing them in large numbers as well as to provide relief to domestic producers and save them from competition that may be leaning in favor of imported goods. For example, if the cost of imported steel in a country is less than that produced by steel manufacturers in the country, the government can use tariffs to impose taxes on imported steel to make it at par or even costlier than domestically made steel. The measure is protectionist in nature and does not provide a level playing field to imported steel. However, the step may sometimes be necessary to encourage domestic manufacturers of steel. This is why taxes levied on imported goods are specifically kept for a certain period, to allow domestic producers to develop and become ready to face competition from foreign producers of steel.
Tariffs help a government monetarily by generating revenues through taxes. If one adds up the money generated for a government through tariffs on different categories of products, it seems that tariffs play an important role in generating revenues for any government.
If domestic producers are still feeling the heat despite having imposed tariff on an imported product, the government of a country has another weapon up its sleeve in terms of quotas, also called import quotas. It can slap an import quota of the product, which implies the quantity that can enter the country though imports have been restricted for a specific period. Thus, imported goods, despite being cheaper than domestic products are not able to make such a large impact than when they are freely imported inside the country. Quota can be used in conjunction with a tariff, or it can be used alone, to restrict the quantity of a product from foreign countries entering domestic markets. Quotas are believed to increase corruption as some importers are prone to bribing government officials to allow their company to import the goods while disallowing others. Quotas also lead to smuggling, hurting domestic economy further. If government believe imported whiskey is hurting domestic producers, it can impose import quotas but people who get used to high quality imported whiskey crave for it making it profitable for smugglers.
What is the difference between Tariff and Quota?
• While both tariff and quota are restrictive trade policies meant to protect domestic producers, they differ in their ways.
• Tariffs are taxes and generate revenue for a government while quotas are restriction on physical quantity of a product.
• Tariff is a tax while quota puts a restriction on the quantity of import.
• Tariff is applicable to all importers while quota hurts some while allowing other importers thus leading to corruption and smuggling.