Trade Barriers

For centuries, governments have used tariffs and quotas to raise revenues and influence the development of individual industries. Since the eighteenth century-when the British Parliament attempted to impose tariffs on tea, sugar, and other commodities on its American colonies-tariff policy has proved fertile soil for revolution and political struggle .

We can use supply-and-demand analysis to understand the economic effects of tariffs and quotas. To begin with, note that a tariff is a tax levied on imports. Table 15-3 lists tariff rates for major categories for the United States and Japan in 1994. To take an example, the United States has a 1.9 percent tariff on automobiles. If a foreign car costs $20,000, the domestic price including the tariff will be $20,380. A quota is a limit on the quantity of imports. The United States has quotas on many products, including peanuts, textiles, and beef.

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