The United States, like many countries, uses a variety of methods to restrain imports into the country, including tariffs, quotas, tariff-rate quotas, and nontariff barriers. Tariffs are taxes or duties applied to imported products, paid by the importing company, increasing the cost of imported products. Quotas are limits on the number of units of a good that can be imported into the United States. Tariff-rate quotas allow a lower tariff rate on in-quota quantities of imports and a higher rate on over-quota levels of imports. Some imports are restrained through nontariff barriers, the rules and regulations with which imported products must comply. Nonconforming products are often banned from importation.
Many U.S. quotas were created to protect American agriculture. These quotas, mostly on animal feeds, dairy products, chocolate, cotton, peanuts, and selected syrups and sugars, are utilized to coordinate U.S. farming pricesupport programs. For example, the United States supports domestic sugar production by paying sugar producers prices significantly higher than world prices. In absence of import quotas, domestic sugar users, such as candy and soft-drink manufacturers, would purchase sugar on the world market instead of higher-priced domestic supplies. Some U.S. agricultural quotas are being “tariffed,” converted into tariff-rate quotas, under the World Trade Organization’s Agreement on Agriculture.
Under the Trade Expansion Act of 1962, the United States authorized the president to “adjust imports” whenever necessary to the country’s national security. Trade embargoes, such as those against Iraq and Cuba, are conducted under this legislation. Narcotic drugs, “immoral” goods, and goods produced by forced, child-bonded, or convict labor are excluded from importation into the United States. Certain goods from the People’s Republic of China have been banned based on these restrictions.
There are numerous nontariff barriers to imports into the United States. These barriers often arise out of state or federal health and safety concerns. Others are based on environmental, consumer protection, product standards, and government procurement. Many nontariff barriers were created for legitimate consumer-protection reasons, but others are attempts by domestic producers to restrict competition. In addition to health and safety concerns, restrictions on imports are often justified based on saving domestic jobs, creating “fair trade,” national defense interests, infant-industry arguments (protecting new domestic industries from established international competitors), and strategic trade-policy goals.
During the debates on the North American Free Trade Agreement (NAFTA), then presidential candidate Ross Perot claimed NAFTA would create a “giant sucking sound,” as U.S. jobs were drawn away to Mexico. Perot argued that Mexico’s cheaper labor costs would cause the loss of millions of American jobs. Steel import restrictions are rationalized as being necessary so the United States will have a domestic source of steel in times of war. Countries sometimes justify protecting new industries, arguing the industries need time to become competitive with the rest of the world. In the mid-1980s, the United States negotiated voluntary import restrictions with Japanese automobile producers so that U.S. producers would have time to catch up to Japanese quality and technology.
Strategic trade policy is the use of trade restrictions or subsidies to allow domestic firms with decreasing costs per unit of output (economies of scale) to gain a larger share of the world market. Producers in many countries around the world argue they need access to the huge U.S. market in order to become large enough to effectively compete with giant U.S. corporations.
Further reading
Boyes, William J., and Michael Melvin. Microeconomics, 5th ed. Boston: Houghton Mifflin, 2002; Folsom, Ralph H., and W. Davis Folsom, Understanding NAFTA and its International Business Implications. New York: Mathew Irwin/Bender, 1996.