What are the pros and cons of imposing quotas on some imported goods?


Quick Answer

The primary advantage of imposing quotas on imported goods is protecting new industries from foreign competitors. The main disadvantage of erecting quotas on imports is its limitation on innovation and progress.

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Full Answer

Imposing quotas is a method used to protect trade, since foreign companies cannot ship more products regardless of how low they set their prices. Countries that hope to help a new industry thrive locally often impose quotas on imported goods. They believe that such restrictions allow entities in the new industry to develop their own competitive advantages and produce the products efficiently. Developing countries often use this argument to justify their restrictions on foreign goods.

Protectionism’s purpose is usually to create jobs for domestic workers. Companies that operate in industries protected by quotas hire workers locally. This trend continues until foreign countries retaliate by imposing similar measures within that industry.

Another disadvantage of quotas is the reduction in the quality of products in the absence of competition from foreign companies. Without competition, local firms are less likely to invest in innovation and improve their products and services. Domestic sellers don’t have an incentive to enhance efficiency and lower their prices, and under such conditions, consumers eventually pay more for products and services they could receive from foreign competitors. As local companies lose competitiveness, they become pressured to outsource jobs. In the long-run, increasing protectionism commonly leads to layoffs and economic slowdown.

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