Why Do Countries Use Tariffs To Control Trade Analysis
Why do countries use tariffs and quartos to control trade?
In business’s purest form it exists as an entity solely to profit and grow. Without regulation business can grow cancerously devouring any competition becoming a monopolistic empire. Companies like Standard Oil Company that prompted the creation of the Sherman Anti-Trust Act. Standard Oil owned 90 to 95 percent of all oil produced in the United State and often went to extreme measures to acquire any competition (Britannica). Tariffs and quotas purpose is preventing foreign business from entering their markets and weaken or destroy their corresponding domestic industry. While tariffs do provide the country’s government some economic gain, tariffs and quotas are not part of a …show more content…
That lost consumer surplus becomes domestic producer surplus. In Figure 1.2 section A represents this domestic loss of consumer surplus and domestic producer surplus. Section C is the amount of profit that the quota has raised by artificially raising the price of the imported goods. Just like with tariffs, sections B and D are a considered a cost to society for imposing the tariff, a deadweight cost that is allotted to no gain for any parties involved. The distance between Q3 and Q4 is the limit imposed by the quota on the imported good.
Tariffs and Quotas can be quintessential revenue of governments for small countries, but can also drive them from being competitive in the world market. Larger countries can use their buying and selling power to influence and bully other countries. Tariffs and quotas can ultimately be used for benefit of a country’s producers and ultimately their economy. A balance needs to be established so that no matter the size or power of a country each country receives a benefit from trade. When one or the other is imposed unjustly or unfairly a vicious cycle could erupt in the form of a trade war. In which nobody