Quotas are limits on how much of a specific product can be imported or exported during a certain time. They act like barriers in trade and can have several effects on international trade. Here’s a simpler breakdown:

1. Decrease in Trade Amount

• Quotas control how much of a product is available in the market. This means that the amount of imports goes down.
• For example, if a country allows only 100,000 tons of sugar to be imported, any imports over that amount won’t be allowed. This limits how much can be traded.
• Research shows that when quotas are put in place, trade can drop by about 20% to 30%, depending on how much people want those goods.

2. Higher Prices

• Because quotas limit how many products are available, the prices of those imported goods can go up.
• If the amount made locally doesn’t change while a quota is in effect, prices could rise a lot. For instance, after quotas were applied, the price of some types of clothing in the U.S. increased by 15% to 40%.

3. Market Problems

• Quotas can create problems in the market and make things less fair. For example, local businesses might benefit unfairly if imports are limited and they face less competition.
• The World Trade Organization (WTO) estimates that these quota systems can cause economic losses of around $7 billion to$10 billion each year for countries that use them.

4. Changes in Trading Sources

• Quotas can lead countries to find products from different places, which is called trade diversion.
• For example, if the U.S. puts a limit on steel coming from Europe, companies in the U.S. might start buying steel from Asia instead, changing where they usually get their products.

In short, quotas aim to help local businesses, but they can lower international trade amounts, raise prices, and cause problems in the market.