• TRADE is the transfer of ownership of goods & services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter.• A POLICY is typically described as a principle or rule to guide decisions and achieve rational outcome(s).
• Are government policies that directly influences the quantity of goods and services that a country imports or exports.• Defines standards, goals, rules and regulations that pertain to trade relations between countries.
• TARIFF – a tax on imported goods.• IMPORT QUOTA – a limit on the quantity of a good that can be produced abroad and sold domestically
• To achieve a balanced expansion of trade.• To develop overseas markets within a framework of multilaterialism (free, open and equitable trade between countries)• To boost the nation’s international trade.
Trade policies can assume varyingdimensions and scope depending on thenumber of parties involved in the policy.Consider the following types of tradepolicies:• National trade policy: Every country formulates this policy to safeguard the best interest of its trade and citizens. This policy is always in consonance with the national foreign policy.
• Bilateral trade policy: This policy is formed between two nations to regulate the trade and business relations with each other. The national trade policies of both the nations and their negotiations under the trade agreement are considered while formulating bilateral trade policy.• International trade policy: International economic organizations, such as Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO) and International Monetary Fund (IMF), define the international trade policy under their charter. The policies uphold the best interests of both developed and developing nations.
• CLOSED Economy: An economy that does not interact with other economies. These are the economies who do not export much nor do they import goods. They may also enjoy an export surplus but do not accept as much imports as they export. Example : BRAZIL• In a way, Brazil is a jail. Fortunately, it is a beautiful prison, with glittering beaches, exotic flowers and wonderful food. However, it has 190 million Brazilians locked in a closed economy—forced to accept whatever quality of goods and services, at whatever price and quantity.
• Open Economy: An economy that interact freely with other economies around the world. They accept and support the goods of other countries as much as they export their own products to other countries.
• Exports – goods and services that are produced domestically and sold abroad• Imports - goods and services that are produced abroad and sold domestically.• Net Exports – the value of a nation’s exports minus the imports (also called trade balance) NX = E - M
• Trade Surplus – an excess of exports over imports• Trade Deficit - an excess of imports over exports• Balanced Trade – a situation in which exports equal imports
• TARRIFS - taxes on imports that have the effect of raising the price of imports relative to domestically produced goods - should act to increase the market share of domestic producers at the expense of imports
• IMPORT CONTROLS- using quotas or a system of import licensing, the government is able to restrict the quantities of goods imported into the country. - these measures also guarantees a set share of the market for domestic producers.
• EXPORT PROMOTION : Incentive programs designed to attract more firms into exporting by offering help in product and market identification and development, pre-shipment and post- shipment financing, training, payment guaranty schemes, trade fairs, trade visits, foreign representation, etc
• EXCHANGE CONTROLS - Types of controls that governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased. Common exchange controls include banning the use of foreign currency and restricting the amount of domestic currency that can be exchanged within the country.
• NOMINAL EXCHANGE RATES – the rate at which a person can trade the currency of one country for the currency of another.Example : converting $ to Php APPRECIATION of the dollar – exchange rate changes so that a dollar buys more foreign currency DEPRECIATION of the dollar – exchange rate changes so that a dollar sells more foreign currency
• REAL EXCHANGE RATES – the rate at which a person can trade the goods and services of one country for the goods and services of another. Like the Nominal Exchange Rates, it is also expressed as units of the foreign item per unit of the domestic item. But in this instance, the item is a good rather than an currency.