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Commercial Policy

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;

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Commercial Policy

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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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