What is a quota in trade?

A quota in trade is a limit on the quantity of a particular good that can be imported or exported during a given timeframe. This mechanism is often employed by countries to control the volume of goods entering or leaving their borders. By establishing quotas, governments can protect domestic industries from excessive foreign competition, regulate the availability of certain products in their markets, and manage overall trade balances.

Quotas are distinct from tariffs, which are taxes imposed on imported goods; they do not directly affect prices but instead restrict the quantity available. Additionally, while there can be voluntary agreements between countries to reduce trade, these are not classified as quotas but rather as trade agreements or arrangements. A complete ban on imports or exports of a specific product is known as an embargo, which is a more extreme measure than a quota. Thus, the definition of a quota specifically refers to the limitation of quantity rather than imposing taxes or outright bans.