Quota is the limit drawn on how much of a particular product can be imported by a country. Whereas, a tariff refers to the tax imposed on the imports coming into a country. Tariffs and quotas can be used for many reasons.

Given below are some reasons highlighting the importance of tariffs and quotas −

●      Protecting Domestic Employment − The probability of increased competition from imported goods may threaten the local companies. As a result, these local companies may remove workers or shift production of goods offshore. This may eventually lead to unemployment among the masses.

●      Protecting Consumers − A government may impose a tax on goods that could be harmful for the people. For example, India imposed a tariff on cigarettes as it is injurious to health.

●      Infant Industries − The Import Substitution Industrialization (ISI) is an approach hired by many developing nations to allow domestic infant industries to prosper.

●      National Security − The defense industries of a nation are considered pillars of state interests. Many developed countries promote and ensure security of the defense industries which will thereby support national security. For example, Western Europe and the United States of America, both the countries are industrialized and developed, and both are very protective of defense-oriented companies.

●      Retaliation − When a particular country feels that a trading partner has not abided by the rules or hasn’t followed policies, then tariffs can be imposed on trading partner as retaliation technique. For example, if France imports wine, cheese, and wheat from the USA, and France places optimal tariffs on imports of these products, then the USA could retaliate by imposing optimal tariffs on its imports of, say, lumber, televisions, and machine tools from France.