INTERNATIONAL TRADE POLICY

International trade policy

encompasses the government-enforced rules, regulations, taxes, and agreements that govern how goods and services move across international borders. Governments utilize trade policy to balance national economic goals—such as protecting local industries, raising revenue, controlling domestic inflation, and preserving employment—against the global efficiency gains that stem from free international trade.

Tariff

is a tax or duty levied on goods when they cross a national border, usually applied to

imported goods.

Ad Valorem Tariff

Calculated as a percentage of the imported good's value (e.g., a 15%

duty on imported motor vehicles).

Specific Tariff

Expressed as a fixed monetary amount per physical unit imported (e.g., $50

per ton of imported steel).

Compound tariff

A combination of an ad valorem tax and a specific tax.

Economic Impact of Tariff

raise the domestic price of imported goods above world market prices. This protects domestic producers by reducing import volume and enabling them to sell at higher prices, but it harms consumers through higher prices and reduced choices. The government also collects tariff revenue.

Non Tariff Barriers

are policy measures other than standard tariffs that restrict or regulate international trade. Theseinclude administrative regulations, health and safety standards, technical specifications, and cumbersome custom clearing procedures.

Sanitary and Phytosanitary (SPS) Measures

Health and food safety standards designed to protect human, animal, or plant health.

Technical Barriers to Trade

Regulations covering labeling, packaging, and quality specifications.

Import Licensing

Rules requiring explicit government approval prior to bringing goods into the country.

Import quota

is a direct physical limit on the total volume or value of a specific commodity that can

be imported over a designated period.

Tariff-Rate Quota (TRQ)

A hybrid system combining tariffs and quotas. A lower tariff rate applies to imports up to a designated quantity limit (in-quota), while a significantly higher tariff rate is levied on any quantity exceeding that limit (out-quota).

Quota Rent:

The extra economic profit earned by holders of foreign trade licenses or quota allocations who import goods at cheaper world prices and sell them at elevated domestic prices.

Subsidy

is financial assistance provided by a government to domestic producers, suppliers, or

exporters to lower their cost of production or keep market prices artificially low.

Forms: Direct cash grants, tax credits, low-interest government loans, price supports, or subsidized inputs (like fertilizer or machinery).

Impact: Subsidies make local producers more competitive relative to foreign rivals without raising retail prices for consumers. However, they place a burden on state finances and can distort global trade.

Dumping

occurs when a foreign firm exports goods to another nation at a price lower than its normal

value in its domestic home market, or below its cost of production.

Anti-Dumping Duties

Extra tariffs imposed by an importing country's government to neutralize the unfair price advantage created by dumping, thereby restoring fair competition.

Strategic Trade Policy

refers to targeted government intervention designed to give specific national industries or high-tech sectors a competitive advantage in international markets. It often target oligopolistic sectors characterized by economies of scale and high entry costs.

Policy Tools: Subsidized research and development (R&D), preferential procurement, strategic infrastructure investments, and tax holidays.