How do import quotas differ from tariffs?

While both tariffs and quotas are used to restrict trade and protect domestic industries, they differ fundamentally in their mechanism and economic impact:

• Nature of Restriction: A tariff is a tax levied on imported goods, which increases their cost to consumers. In contrast, an import quota sets an absolute physical limit on the quantity or value of a commodity that can be imported over a specific period.123
• Impact on Supply: Because quotas are set in physical terms, they provide a direct ceiling on imports that cannot be bypassed by price changes. While tariffs also raise prices, they do not strictly prohibit the entry of additional goods if demand remains high.2
• Revenue Distribution: With tariffs, the government collects the revenue generated by the tax. Under a quota system, the difference between the higher domestic price and the lower international price often results in a "windfall" profit for the holders of import licenses rather than government revenue.23

The World Trade Organization generally encourages members to limit trade restrictions to tariffs, as they provide greater transparency and predictability compared to quantitative restrictions.4