The Benefits of Tariffs & Quotas
The World Trade Organization argues for free trade based on the idea that increased competition strengthens industries by increasing innovation and invention. Lower labor and overhead costs in developing countries, however, might result in challenges for companies in industrialized nations to remain competitive. Tariffs and quotas are intended to protect domestic producers, thereby saving domestic jobs and reducing the effect of world trade on the environment.
Other People Are Reading
-
Job Protection
-
Both tariffs and quotas seek to protect domestic jobs. Tariffs protect jobs by preventing foreign competitors from selling products at prices that are too low for domestic companies to profitably match. Tariff rates equal to the difference in labor and overhead costs between developing and industrialized nations, less the cost of shipping, equalize costs so that domestic companies remain competitive. Quotas similarly protect domestic jobs by ensuring that foreign products cannot be imported in sufficient numbers to meet current demand. This ensures that domestic companies retain a percentage of the existing market share. Keeping domestic companies competitive prevents them from closing plants and reducing their work forces.
Government Benefits
-
The government receives revenue as a result of both tariffs and quotas. Tariffs are a tax on imported goods, and therefore directly benefit the governmental recipients. Quotas also benefit the government because protected domestic corporations keep people employed. This not only reduces the need for government assistance, but it ensures that people are able to pay sales, property and income taxes.
-
Consumer Benefits
-
On the surface, tariffs and quotas appear to hurt consumers by maintaining higher prices. However, protecting domestic jobs strengthens the economy by preventing increases in unemployment. Workers paid a reasonable living within the United States then have income available to spend on goods and services. Manufacturers still must be careful not to over-inflate their prices so that supply does not exceed demand, but tariffs and quotas can help them compensate for the lower overhead costs incurred by foreign manufacturers.
Environmental Benefits
-
International trade raises several environmental concerns, including pollution resulting from transportation and the over-exploitation of natural resources in developing nations. Tariffs protect the environment by increasing export prices which reduces demand and therefore reduces the need for natural resources either to transport or manufacture goods. Quotas function similarly and are especially helpful in industries such as fishing where market restrictions seek to protect endangered species and reduce the environmental impact of overfishing.
-
References
- Photo Credit Jupiterimages/Photos.com/Getty Images
