WHAT ARE QUOTAS, TARIFFS, AND SUBSIDIES?


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Although a trade war may not be as destructive as a military war, in both cases many people suffer-often the very people the war was meant to protect.

 By attempting to protect a few jobs in inefficient industries, trade restriction often force consumers and business to buy poorly made and relatively expensive domestic products. For example, it is estimated that U.S restrictions on imports of cheap foreign steel during the 1990s, while protecting a few thousand jobs at inefficient American steel manufacturers ended up costing U.S. consumers and business billions of dollars in increased costs for everything from refrigerators to minivans.

 The most common trade barriers are quotas, tariffs, and subsidies. By imposing a quota, a country limits the quantity of foreign products that can be imported. A tariff is a tax placed on goods entering a country, raising the price of foreign-made goods. Governments can also use taxpayers money to provide a subsidy to local producers, making the price of local goods artificially lower than imported goods.

 Trade barriers, like walls between feuding neighbors, are usually imposed unilaterally by one country acting on its own to limit imports. These barriers are usually designed to “temporarily” protect local producers from foreign competition and allow them time to improve productivity. The problem is that local producers, once given the comfort of a protected market, rarely make the sacrifices necessary to improve their products or lower their prices.


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