In selling in domestic markets and sometimes stop importing a product.

— Import quotas specify the maximum amounts of commodities which may be imported in any

period of time. Frequently, import quotas are more effective in retarding international commerce

than are tariffs. A given product might be imported in relatively large quantities despite high tariffs;

low import quotas, on the other hand, completely prohibit imports once the quotas are filled.

— Nontariff barriers (NTBs) refer to licensing requirements, unreasonable standards pertaining

to product quality and safety, or simply unnecessary bureaucratic red tape in customs procedures.

To illustrate: Japan and the European countries frequently require their domestic importers

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of foreign goods to obtain licenses. By restricting the issuance of licenses, imports can be effectively

restricted. Great Britain bars the importation of coal in this way.

— Voluntary export restrictions (VERs) are a relatively new trade barrier by which foreign firms!

“voluntarily” limit the amount of their exports to a particular country. VERs, which have the effect

of import quotas, are agreed to by exporters in the hope of avoiding more stringent trade barriers o r

a decline in prices. Thus Japanese auto manufacturers agreed to a VER on exports to the United

States under the threat of higher US tariffs or the imposition of low import quotas. The same is true

concerning oil products export by the OPEC and some other countries.

b) Economic consequences of trade restrictions

If tariffs and quotas impede free trade and thereby diminish economic efficiency, why do we have

them? While nations as a whole gain from free international trade, particular industries and groups of

resource suppliers can be hurt. In our comparative advantage example (Unit 1), specialization and

trade adversely affected the American coffee industry and the Brazilian wheat industry. It is easy to

see why such groups may seek to preserve or improve their economic positions by persuading the

government to impose tariffs or quotas to protect them from the “detrimental” effects of free trade.

The thing of primary concern is that the costs of protectionism are hidden because tariffs and

quotas are embedded in the prices of goods. Thus policy makers face fewer political restraints in

responding positively to demands for protectionism.

This tariff and quotas revenue is essentially a transfer of income from consumers to government

and does not represent any net change in the nation’s economic well-being. The result is that

government gains a portion of what consumers lose.

In short, tariffs directly promote the expansion of relatively inefficient industries which do not have a

comparative advantage and indirectly cause the contraction of relatively efficient industries which do have a

comparative advantage. This means that tariffs cause resources to be shifted in the wrong direction. This

Is not surprising. We know that specialization and unfettered world trade based on comparative advantage

would lead to the efficient use of world resources and an expansion of the world’s real output.

The purpose and effect of protective tariffs are to reduce world trade. Therefore, aside from

their specific effects upon consumers and foreign and domestic producers, tariffs diminish the

world’s real output.

c) Groundlessness of protection measures

First, protective tariffs are needed to preserve or strengthen industries producing strategic goods

and materials essential for defense or war. The argument here is not economic, but rather it is of

a political-military nature.