The Winners and Losers from a Tariff or Quota

Who benefits from a tariff or quota?

A tariff is nothing more than a tax on foreign trade, while a quota is an limit on the number of goods that can be imported by foreign producers. Both methods of government intervention will be beneficial to domestic manufacturers. By taxing imports, the a tariff provides an artificial advantage to domestic producers because they will not be subjected to the increased cost of tax.

Who looses?

The losers from a tariff are international manufacturers and domestic consumers. International manufacturers will need to either increases prices (which will decease nominal demand) or take a reduction in profits. Domestic consumers will not be able to shop for products in a true fair marketing, which will ultimately cause goods to be more expensive and/or lower quality.

Why would domestic markets benefits from protectionist trade policies?

Domestic markets can benefit from protectionist trade policies because they force a population to become self sufficient on a broad spectrum of goods. This has the potential to provide strong employment within the economy. However, it does make goods more expensive as scarcity becomes greater for specialized products.

How does protectionist trade polices affect governments wealth and fiscal policy?

Governments that engage in protectionism are essentially subsidizing domestic business. Generally speaking, this causes government wealth to decrease and goverment debt to increase. Many domestic industries do not have a comparative advantage to produce goods at the market equlibrium price, thus the government must perpetually use taxpayer funds to prop up these industries.

Tariff and Quotas Detailed PowerPoint Presentation

  • Student: Marsha
  • Textbook: Macroeconomics and Foreign Trade
  • Course: ECO/372

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