import quotas

Carbaugh, Chap. 6 1

Import quotas Quota: how much of a good that may be

imported in a year (usually below free-trade levels)

Global quotas restrict the total quantity of an import, regardless of origin

Selective quotas restrict the quantity of a good coming from a particular country

Types of non-tariff barriers

Carbaugh, Chap. 6 2

0

1

2

3

4

5

6

7

8

9

10

0 1 2 3 4 5 6 7 8 9 10 11 12

Cheese (pounds)

Import quota: trade & welfare effectsP

ric

e ($

) SUS

SEU

SUS+Q

a b c d

DUS


Quota

Carbaugh, Chap. 6 3

Comparing tariffs and quotas

5,000

6,000

7,000

8,000

9,000

10,000

0 1 2 3 4 5 6 7 8 9 10 11 12

Autos (millions)

Pri

ce (

$)

SUS0


SJ1

SJ0

DUS0 5,000

6,000

7,000

8,000

9,000

10,000

0 1 2 3 4 5 6 7 8 9 10 11 12

Autos (millions)

Pri

ce (

$)

SUS0

SJ0

DUS0

Tariff restriction Quota restriction

Carbaugh, Chap. 6 4

Tariff-rate quota The tariff-rate quota is a two-tiered tariff

A specified number of goods (up to the quota limit) may be imported at one (lower) tariff rate, while imports in excess of the quota face a higher tariff rate


Carbaugh, Chap. 6 5

Orderly marketing agreements Market sharing pact intended to protect less

efficient domestic producers Usually involve voluntary export restraints,

or export quotas Japanese auto exports


Carbaugh, Chap. 6 6

Domestic content requirements Rules that require a certain percentage of a

product’s total value to be produced domestically

Forces lower-priced imports to include high-cost domestic components or to be assembled by high-cost domestic producer


Carbaugh, Chap. 6 7

Subsidies Domestic subsidy

Payments made to import-competing producers to raise the price they receive above the market price

Export subsidy Payments and incentives offered to export

producers intended to raise the volume of exports


Carbaugh, Chap. 6 8

375

400

425

450

475

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Steel (mill. tons)

Subsidies: trade & welfare effectsP

ric

e ($

)

SUS0

SW

a b

DUS

Subsidy: shifts domestic supply down and out. Consumers not hurt.

SUS1

Domestic subsidy: Payments made to import-competing producers to raise the price they receive above the market price

Carbaugh, Chap. 6 9

0

25

50

75

100

125

150

175

200

0 0.5 1 1.5 2 2.5 3

Quantity of TVs (millions)

Subsidies: trade & welfare effectsP

ric

e ($

)

SJ0

E

F

DUS

Japanese Subsidy ofTV exports lowers their price to US buyers

SJ1

Export subsidy: Payments and incentives offered to exporterthat raise the volume of exports

G

Carbaugh, Chap. 6 10

Dumping The practice of selling a product at a lower

price in export markets than at home (or exporting at prices below production cost) Sporadic dumping - to clear unwanted

inventories or cope with excess capacity Predatory dumping - to undermine foreign

competitors Persistent dumping - reaping greater profits by

engaging in price discrimination


Carbaugh, Chap. 6 11

Other NTBs Government procurement policies Social regulations (health, environmental

and safety rules can also restrict trade) Sea transport and freight restrictions


import quotas

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