Tariffs & Quotas | Business Studies for GCSE/IGCSE - Year 11 PDF Download

Import Tariffs

• Definition: An import tariff is a tax imposed on goods brought into a country from abroad.
• Example: For instance, consider tennis rackets being imported from China into the UK, facing a tariff rate of 4.7%.
• Impact: Import tariffs lead to a rise in the cost of imported items, influencing consumers to prefer domestic products over foreign alternatives.

• American consumers are increasingly inclined to buy American cheese due to tariffs, which have raised the prices of British cheese.

The Benefits of Tariffs

• They safeguard emerging industries during their early stages to foster eventual global competitiveness.
• Leads to a rise in government tax income.
• Mitigates dumping by foreign enterprises by preventing them from selling below market price.

The Drawbacks of Tariffs

• Raises the expenses of imported raw materials, impacting businesses reliant on these inputs for production, resulting in elevated prices for consumers.
• Diminishes competition for domestic enterprises, potentially fostering inefficiency and the production of subpar products for consumers.
• Constrains consumer options by elevating import costs, rendering certain goods unaffordable to some customers.

Quotas

• An import quota is a restriction set by the government on the amount of a specific product that can be brought into a country. For instance, China has imposed an import quota on Cambodian rice, limiting it to about 5.32 million tonnes annually.
• Implementing import quotas helps local businesses by reducing external competition, allowing them to capture more of the market share. This means that a greater portion of the demand is satisfied by domestic producers.

The Benefits of Import Quotas

• To meet additional demand, local businesses may need to expand their workforce, leading to lower unemployment rates and overall economic advantages.
• The increased prices resulting from quotas can incentivize the establishment of new businesses within the industry.
• Nations have the flexibility to adjust import quotas according to evolving market conditions.
• Foreign countries tend to perceive quotas as less contentious compared to tariffs, allowing their exporters to sell goods domestically at higher prices, albeit within restricted quantities.

Disadvantages of Import Quotas

• Import quotas restrict the supply of a product, leading to an increase in its price due to limited availability.
• Implementing quotas may strain relationships with trading partners.
• Domestic firms could experience decreased efficiency over time as competition levels drop with quota usage.