Nowadays,in the international trade market,countries use all kinds of methods to protect their domestic producer from the influence of trading.Tariffs and quotas are common in a country's policy toward international trade.They both serve the purpose of controlling the number of foreign products that can enter the domestic market.
Tariffs are taxes imposed on imported goods; they will increase the price of the good in the domestic market. Domestic producers benefit because they receive higher prices. The government benefits by collecting tax revenues.On the other hand,quotas are numerical limits imposed on imported goods. In general,consumers are harmed by quotas, while domestic and foreign producers benefit by receiving higher prices,but the situation can be different in some circumstances.Here is a exception.
Recently,China plans to cut cotton import quotas in order to boost demand for domestic fiber.As a world biggest consumer of cotton,China's policy driving future prices in both China and the United States lower.Besides that,non-quota imports are subject to a 40 percent tariff, so the restricted availability of import quotas will inevitably dampen Chinese demand for foreign cotton.In this case,the change in quota policy will hurt major exporters such as the United States(Beijing cotton plans dash U.S. farmers' hopes of price recovery)
where Chinese demand has played a key role in influencing fiber prices.Meanwhile, the Chinese government said that they will end the stockpiling that had pushed the price of domestic cotton well above market prices and instead offer subsidies to farmers.
As we can see from the new above,quota issue by China is causing both domestic and foreign prices to drop,hurting both domestic and foreign producers.In order to solve this problem, the government offer subsidies to domestic farmer to cover up their losses.Overall,the policy is to protect the domestic producers.
China is covering their losses to protect domestic producers, but I wonder what the U.S. and other foreign producers are doing to cover losses. China's policy only looked out for themselves. They are going to benefit from the lower prices with an increase in demand while domestic producers stay well off with the subsidies. Though, there needs to be a response from foreign countries because without a response foreign producers will be hurt lowering the competition for China.
ReplyDelete