What are import quotas and why might they be used instead of an import tariff?

Import quotas are restrictions that set a physical limit on the quantity of a particular good that can be imported into a country over a specified period. These limits help protect domestic industries by controlling the supply of foreign goods, thereby reducing competition and often keeping domestic prices higher.

Reasons for Using Import Quotas Instead of Tariffs:

1. Greater Predictability in Import Volume: Quotas provide a fixed cap on the volume of imports, ensuring that domestic industries are shielded from excessive foreign competition in a more controlled manner than tariffs, which only increase costs but do not cap quantities.
2. Non-Tariff Barrier Preference: In cases where tariff hikes might be politically sensitive or against international agreements, quotas serve as an alternative. For instance, WTO rules may restrict the levels of tariffs but allow some flexibility in non-tariff measures.
3. Specific Industry Protection: Quotas are often used when governments seek to protect a particular industry that is especially vulnerable to foreign competition. For example, agricultural sectors are commonly protected by quotas due to their importance for food security and rural employment.

Recent Examples of Import Quotas:

1. European Union Steel Quotas (2024):
   • The EU has continued quotas on steel imports to protect its domestic steel industry, which has faced competitive pressure from countries with lower production costs. These quotas limit the amount of steel that non-EU countries, including the U.S., Japan, and China, can export to the EU annually​European Central Bank.
2. U.S. Quotas on Aluminum and Steel:
   • The United States maintains quotas on aluminum and steel imports from several countries, including Brazil and South Korea, as part of its trade measures aimed at bolstering the U.S. steel and aluminum sectors. These quotas have been set instead of tariffs to stabilize domestic prices and secure national supply chains​European Central Bank​European Central Bank.
3. Japan's Quotas on Agricultural Products:
   • Japan uses quotas for certain agricultural imports, including rice, wheat, and dairy products, to protect its agricultural sector and ensure food security. These quotas are part of Japan’s long-standing policy to support domestic farmers and control the supply of sensitive goods​European Central Bank.

Quotas thus offer governments more control over the import volume and often serve as a politically feasible alternative to tariffs, particularly in sensitive industries where protection is deemed necessary for economic stability or security.