Commercial Policy

1
Commercial Policy

• Commercial policy refers to any governmental
  measure that discriminates against foreign
  suppliers

2
Arguments for Commercial Policy

• To Protect Domestic Industries
• To Save Jobs
• National Security and Defense
• To Protect an Infant Industry
• To Raise Revenue for Government
• Balance of Payments
• Second-Best Arguments and
• Others

3
Tools of Commercial Policy

• Tariffs and
• Non-Tariff Barriers (NTBs)
• Import Quotas
• Voluntary Export Restraints (VERs)
• Export Subsidies
• Intellectual Property Rights
• Health and Safety Standards and
• Others

4
Tariffs

• A Tariff is a tax levied on imports. Tariffs
  can be Ad Valorem or Specific.
• The Ad Valorem tariff is expressed as a fixed
  percentage of the value of the traded commodity.
• The Specific tariff is expressed as a fixed sum
  per physical unit of the traded good.

5
A Preview of Conclusions

• A tariff almost always lowers world well-being.
• A tariff usually lowers the well-being of each
  nation, including the nation imposing the tariff.
• As a general rule, whatever a tariff can do for a
  nation, something else can do better.

6
Exceptions

• When a nation can affect the prices at which it
  trades with foreigners, it can gain from its own
  tariff.
• In cases where other incurable distortions exist
  in the economy, imposing a tariff may be better
  than doing nothing.
• In a narrow range of cases with distortions that
  are specific to trade itself, a tariff can be
  better than any other policy.