question_answer 12)

Tax on imports is one type of trade barrier. The government could also place a limit on the number of goods that can be imported. This is known as quotas. Can you explain, using the example of Chinese toys, how quotas can be used as trade barriers? Do you think this should be used? Discuss.  

Answer:

In the case of Chinese toys, quotas should be used as trade barriers to a limited extent to protect the Indian producers of a similar nature of toys which are being imported. This should be done so that both Indian and Chinese toys compete on an equal footing in the Indian market. This will lead to a healthy competition so that the quality of toys will improve. Also, Indian manufacturers will need to earn only reasonable profits. If Chinese toys were totally restricted, Indian manufacturers will be tempted to lower their quality and increase prices, thus harming the customers. On the other hand, if there are no quota restrictions on Chinese toys, China will 'dump' toys in the market, reducing the sales of the Indian producer and also harming the customer, as then the customer will not have a free choice at a competitive price.