Commercial Policy Commercial policy refers to any governmental

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

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

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

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.

A Preview of Conclusions • A tariff almost always lowers world wellbeing. • 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.

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.