Import Quota

Published Jan 1, 2023

Definition of Import Quota

An import quota is a restriction on the amount of a certain good that can be imported into a country. That means it is a type of protectionist trade policy that limits the quantity of a certain good that can be imported and sold domestically.

Example

To illustrate this, let’s say the government of an imaginary country called Isoland wants to protect and promote its local car production. To do that, it decides to impose an import quota of 100 on cars. That means that the government of Isoland will only allow a total of 100 cars to be imported into the country from abroad each year.

If this quota is lower than the number of cars that would be imported without the quota, demand for domestically produced cars will most likely increase and local car manufacturers can earn more money.

Why Import Quotas Matter

Import quotas are a popular form of protectionism, as they can help protect domestic industries from foreign competition. By limiting the amount of foreign goods that can be imported into a country, the government can protect domestic producers from foreign competition and ensure that they can remain competitive.

In addition to that, import quotas can also be used to protect certain industries from overproduction. By limiting the number of foreign goods that can be imported, the government can ensure that domestic producers are not producing too much of a certain good (e.g., because they can’t import more than a certain amount of the raw materials they need), which would lead to oversupply and lower prices.