Import restrictions

Updated: Aug 20, 2021

Restrictions on the importation of products into a country may be effected by means of tariffs, quotas or import deposits, and are generally imposed to correct a balance of payments deficit. Their purpose, as with devalutation, is to divert expenditure away from foreign-produced goods in favour of goods produced at home. The magnitude of this diversionary effect will depend on the elasticity of demand for the imports in question; that is to say, the degree to which acceptable subsitutes are available on the home market. In addition, import restrictions could be used to increase a country’s economic welfare at the expense of foreign countries to the ex tent that it has power to exploit its foreign suppliers, e.g. as a monopolist, without fear of retaliation. Finally, import duties may be applied to protect the market of domestic industry while it is being established. Non-tariff barriers to trade include revenue duties, such as value added tax, which, being imposed as a percentage on landed, i.e. duty-paid, value, increase the cost of imported goods more than locally produced goods and thus discriminate in favour of the latter. Other examples are domestic taxes applied according to the technical characteristics of goods, e.g. on engine capacity, which may subtly discriminate against imports.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.