'Import Quotas' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Import quotas are numerical restrictions which a government of one country imposes on the imports of another competing nation. The main purpose of such quotas lies in decreasing imports while simultaneously boosting a country’s own inherent domestic production. With the numbers of such imports restricted, the price of these imports will increase. This then fosters the production, purchase, and consumption of more domestically-produced goods and services by a nation’s own consumers.
Import quotas prove to be among three of the most common foreign trade policies utilized to discourage imports while encouraging exports. Besides these are export subsidies and tariffs. National governments undertake to enforce these quotas as foreign trade policies. They are enacted with the intention of defending domestic production through limiting foreign competition.
Quotas in general are typically quantity limitations which a group slaps on activities, services, and goods. Employers typically run into hiring quotas for different national groups of people. Sales representatives also face such quotas in their sales activities and endeavors.
This is why import quotas as an extension of this idea are simply the foreign sector amount of imports which a domestic government will permit in a given industry or service sector. By increasing the numbers of domestically-produced goods in an economy while discouraging the numbers of competing imports, a nation’s consumers are prompted to buy home-produced goods and services instead of foreign-based and -produced ones.
There are five principal reasons why import quotas are sometimes imposed on foreign imports of goods and services. The political pressure is such that domestic employment has to be protected and encouraged. Many domestic jobs proponents fear the competition of low foreign wages. By decreasing the number of imports from such countries, governments are able to lower the playing field for higher and better paid domestic employees.
Governments can also be concerned about unfair trade practices and infant industry worries. Unfair trade means that the foreign-created imports could be dumped at prices which are lower than possible production costs. Foreign exporters would do this temporarily in a market in order to reduce the ability of domestic producers to effectively compete and remain in business at the same time. China has been a major practitioner of dumping and unfair trade practices in industries such as steel around the world in the past. Infant industry refers to a comparatively new domestic industry which has not grown up sufficiently in order to benefit from the necessary economies of scale. Import quotas serve to safeguard this infantile industry while it develops and grows from cheaper and more efficient competition overseas.
A final motivating factor for import quotas revolves around the quite complex idea of national security. These quotas could be employed to discourage imports while encouraging domestic production of those goods which are called crucial for the nation’s security and ultimate survival of its national economy. The military hardware production industry is one such example of a sector which many nations are eager to protect from less expensive foreign competition.
Economists are divided on the net effect and overall effectiveness of import quotas as they pertain to foreign trade and government policies. They do tend to help out the domestic economy for which they are the most advantageous. Domestic firms which are struggling against competition from stronger foreign competitors are most likely backers of such policies. The national companies see benefits from greater sales and profits, as well as additional income for the owners of the resources and factors of production. The problem with boosting domestic prices by restricting consumers’ access to foreign imports is that such foreign trade policies will hurt the domestic consumers by increasing prices in stores and reducing both the ultimate quality and available choices offered.