Protectionism

A recent trade agreement between the EU and Vietnam subjected Italy's imports on some agriculture food markets such as rice to quotas that limit how much can be imported per year. This was bad for Italy because tariffs on rice were also eliminated which meant that now not only were their imports limited but they also couldn't be taxed so Italy was gaining nothing from the imports. Shown in the graph below the world supply price would drop to P2 without a tariff.


This has an effect on domestic producers of rice because when there is a quota on the imports then there is a higher need for domestic production. Domestic producers may need to increase production, which may be possible due to a higher demand for their product, which would hypothetically increase their revenue. Domestic rice producers would also possibly be able to expand and employ more workers which could lower unemployment. 

Foreign rice producers may not be able to export all of their rice to Italy due to the quota which means that it will be more competitive for those that are able to export to Italy. For foreign producers this means that they will gain more money from exporting to Italy because rice will be more valuable in Italy due to the quota that prevents them from importing more rice

The Italian government is also gaining less money due to this agreement because they are not only importing less rice due to the quota, but there is also no tariff which means that they aren't taxing the rice for profit. This may mean that they raise taxes in order to make up for lost revenue. 

The Italian government may want to provide subsidies to the rice industry in order to make up for the loss of international rice trade. These subsidies may enable domestic rice producers to expand factors of production and do a better job of providing rice to the country without yearly quotas.

https://news.italianfood.net/2019/08/16/the-impact-of-vietnam-on-italian-rice-production/

Comments

  1. I'm a bit confused as to whether you are analyzing the tariff or the quota. You seem to refer to both at times, and the diagram is a tariff diagram.

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