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Understanding Commercial Policy: Tariffs and Non-Tariff Barriers

Commercial policy involves government measures that impact foreign suppliers. Learn about tariffs, NTBs, and arguments for and against commercial policies, including their impact on industries, jobs, national security, and more.

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Understanding Commercial Policy: Tariffs and Non-Tariff Barriers

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  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.

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