Quota Systems as an Alternative to Tariffs

[German-Lefty]

Lots of people here are upset and NAFTA, WTO, outsourcing and offshoring, all the things that come with no holds barred "free trade".

The reaction to these problems have been protective tariffs, like "1 ton of imported steel shall be taxed at $1." or where possible "imported oil will be taxed at 2% of market value."

These tariffs don't directly dictate how much of something is imported. Often they are used as all or nothing. Trade either becomes completely blocked off because at the set rate it will be completely uneconomical to import, or trade is taxed so lightly that it has little effect on the volume imported.
:think:
So here's the idea. Sell quotas limiting the volume of a certain trade, but let the market determine the size of the tariff. Let the government auction off a security (like the do with bonds) which allows the holder to import a certain amount of something within a certain period.

Example: Say you want to "protect the steel industry". Last quarter we imported X tons of steel. We will continue to import X tons of steel to keep our trade partners happy, but we won't import any more to keep our steel industry alive. So every quarter Uncle Sam auctions off X steel import quotas.

If everything stays as it was last quarter, the same amount of steel would be imported and the quotas would have a zero value. If demand for steel increased, the same amount of steel would be imported, but the government would make money. Any increase in consumption would have to be matched by an increase in domestic production.


The reason I prefer such a quota system, as an alternative to subsidies and tariffs, is because they tend to violently start and stop trade, which is bad for economies on both sides.

It sucks if one year you open up trade to country X, and they invest in factories and get jobs and produce something, and then US workers loose their jobs and factories close, and then the next year we break off trade with country X or subsidize our industry and they're stuck with useless factories, piles of debt, and terrible unemployment. If we could slowly open up quotas, we could slowly transfer one type of job to another country. They'll know "hey the US will import X textiles from us, for the next couple years, ok we can plan our economy for this."

This just another one of those crazy little ideas I get every now and then; I'm just curious if there are any takers.

[Darien12]

1. Same thing different name.

One question: What is to stop the quota system from being violently altered, started, or stopped? (i.e. changing the quota from 1000 tons of steel to 20)

[German-Lefty]

2. Similar but different

What is to stop the quota system from being violently altered, started, or stopped?
Perhaps treaty obligations.

The point is that the political pressure to change a quota should be less. With a tariff, as soon as it's cheaper to do something in another country, the market violently moves production over there. This leaves parties on both sides of the boarder screwed unless they've figured out some way to hedge themselves. That's something the big boys figure out how to do, but third world farmers and US factory workers just can't.

I agree that if regulators when the exact supply demand curve for imports and could react quickly enough, they could set a tariff so it limits volume exactly like a quota.

I don't think that's possible. They just slap some amount on there and hope that not too much steel gets imported, but that steel prices don't kill the car manufacturers. They have little control over what their actions will do. Congress is going to be too slow to react changes in the market to adjust the tariff.

I'm trying to break things up into two parts:
1) Politicians decide who we trade with and how much.
2) A market controls the price of imports within those bounds.

[jhfenton]

3. Tariffs = Quotas

Tariffs and quotas have the same economic effect. They are equally counterproductive.

[German-Lefty]

4. So you're against tariffs and quotas?

Tariffs and quotas have the same economic effect. They are equally counterproductive.
Are you against all restrictions on international trade? I'm arguing that if you are going to regulate, this way could be better.