Suppose the U.S. uses a quota that halves its footwear imports (about 85-90% of the footwear currently sold to the U.S. is imported). Suppose the shoes are made under perfect competitive conditions and the equilibrium price of the shoes is now $50 per pair. Illustrate and explain how this quota will affect the price and production of footwear in the United States. Moreover, we have seen that for trade, it is the comparative advantage that counts, not the comparative cost of labour. If each nation specializes in goods and services in which it has a comparative advantage – measured by the quantities of other goods and services that have been abandoned for their production – then world production and thus world consumption increases. By definition, every nation will have a comparative advantage in something. U.S. Customs and Border Protection (CBP) administers the majority of import quotas.
The CBP Commissioner controls the importation of in-quota goods, but is not authorized to change or modify a quota. Other government agencies, such as the Department of Agriculture, the National Marine Fisheries Service, the International Trade Commission or the Department of Commerce (DOC), in collaboration with the Office of the United States Trade Representative, set and set quota limits. Voluntary export restrictions are a form of trade barriers whereby foreign companies commit to limiting the quantity of goods exported to a given country. They became known in the United States in the 1980s when the U.S. government convinced foreign exporters of automobiles and steel to limit their exports to the United States. In certain circumstances, nations may restrict the supply of imported goods without explicitly imposing trade quotas on other nations. For example, governments may impose strict quality control restrictions on all goods imported into the country. While this may seem like a simple best practice step, hidden quotas could prevent a large number of foreign goods from entering a country due to a lack of quality. Thus, the supply of this good is restricted and the Government would have achieved a similar result if it had set an import quota for foreign imports. The practice of a foreign company charging a price in the United States that is lower than the price it charges in its home country is common.
The U.S. market may be more competitive, or the foreign company may simply try to make its product attractive to U.S. buyers who are not yet accustomed to its product. In any case, such price-discriminating behaviour is not uncommon and is not necessarily “unfair”. Another justification for protectionist measures is that free trade is unfair when it pits domestic companies against foreign competitors who do not have to meet the same regulatory standards. In the NAFTA debate, for example, critics warned that Mexican companies facing relatively lax standards to combat pollution would have an unfair advantage over U.S. companies if restrictions on trade between the two countries were lifted. Many restrictions aimed at protecting consumers in the internal market create barriers as a purely unintended and probably desirable side effect. For example, restrictions on the content of insecticides in foods are often stricter in the United States than in other countries.
These standards tend to prevent the import of foreign goods, but their main purpose appears to be to protect consumers from harmful chemicals, not to restrict trade. But other non-tariff barriers only seem to serve to prevent foreign goods from entering. Tomatoes produced in Mexico, for example, compete with those produced in the United States. But Mexican tomatoes tend to be smaller than American tomatoes. The U.S. has already imposed significant restrictions to “protect” the U.S. Consumers of small tomatoes. The result was a very effective trade barrier that protected U.S. producers and raised U.S.
tomato prices. These restrictions were lifted under the North American Free Trade Agreement, resulting in a sharp increase in U.S. imports of Mexican tomatoes and a decline in U.S. tomato production. If a government wants to protect domestic companies or prevent a foreign power from controlling too much of its market for a good or service, it can set a quota for imports from that country. The quota may limit either the total value of the good or the number of units of the good that the nation can export to your country. Quotas can also limit the ability of domestic companies to ship products to other countries. Quotas are different from tariffs, which tax imports and exports.
Instead, they set a strict limit on imports and exports and are often used alongside tariffs. U.S. import quotas can be divided into two types: absolute duties and tariffs. Absolute quotas strictly limit the amount of goods that can enter U.S. trade for a certain period of time. Tariff quotas allow a certain quantity of imported products to be imported at a reduced rate of duty during the quota period. Once the TRQ limit is reached, the goods can continue to be imported, but at a higher rate of duty. Many free trade agreements and special trade laws set preferential tariff levels (BPD), which CBP administers as tariff rate quotas. Quota-based goods are subject to CBP`s usual rules of procedure applicable to other imports.