Commercial policy is the part a country’s economic policy, that is related with measures and instruments that influence exports and imports, either through quantities, prices or which goods will be traded or not. Commercial policy consists of tariffs and other restrictions on international trade.
Governments can impose restrictions on trade:
- to protect local employment
- to protect local industries
- to reduce commercial deficit
- because of political pressure
Instruments of commercial policy
A tariff is a tax levied on an imported or exported good. There are mainly two types of tariffs: unit tariffs and value tariffs. A Unit tariffs consists on a fixed amount per unit traded. A value tariff consists on a proportion of the value of traded goods.
Usually, countries impose import tariffs on many goods, to protect local industries and sometimes, because of political pressure. But some countries also impose exports tariffs to collect money and improve fiscal balance.
- Quantitative restrictions: This type of restrictions consist of import and export quotas, differential exchange rates and some times can also include administrative delays.
- Subsidies and instruments that promote certain industries: The state may subsidize certain industries which replace imports or increase exports. Governments can also give technological support and promote certain industries as part of it’s commercial policy.
Countries usually make agreements to coordinate it’s commercial policy. These are the most important types of commercial agreements:
Bilateral agreements: two countries undertake a bilateral agreement. One country reduces import tariffs or other restrictions to imports from the another country, and the other country does the same with certain products from the first country.
Free trade agreements: a lot of commercial barriers between 2 or more countries are reduced or eliminated.
Custom unions: a group of countries unifies his external custom tariffs and make agreements regarding its internal tariffs.
Free economic areas: a lot of commercial regulations are eliminated. The movement of production factors is liberalized and monetary policy is coordinated. There are several grades of economic unions. European Union has unified it’s currency and released the movement of production factors.
Commercial relations between governments are not always cooperative: restrictive measures taken by a country can lead to other restrictive measures taken by another country in response to the first measures. For example, if a country raises its import tariffs to a product, the country that exports these products can raise the tariffs to products exported from the first country.