Trade Policies and Negotiations

Trade Policies - Definition and Types

Trade policies refer to the regulations and agreements that control imports and exports to foreign countries.
They set out the rules for international commerce, including tariffs, quotas, subsidies, and customs regulations.
Tariffs are taxes on imported goods, used to protect domestic producers from foreign competition.
Quotas are restrictions on the quantity of a certain good that can be imported, also used to protect domestic industries.
Subsidies are grants provided by governments to their domestic industries, helping them compete more effectively against imported goods.
Non-tariff barriers (NTBs) include regulations such as product standards, safety requirements, and bureaucratic hurdles, which can discourage imports.

Benefits of Trade Policies

Trade policies can protect domestic industries from foreign competition, promoting economic growth and safeguarding jobs in these sectors.
They can be used to support strategic industries, such as defence or agriculture, which are considered important for national security or societal wellbeing.
Tariffs increase government revenue, while subsidies can correct market failure by encouraging socially desirable production.

Drawbacks of Trade Policies

Trade policies can lead to trade wars, where countries retaliate against protectionist measures with their own tariffs, quotas or other restrictions, reducing global trade.
They can result in lower economic efficiency, as protected domestic firms lack the incentive to improve productivity or reduce costs.
Consumers face higher prices and reduced choice as a result of protectionism.

Trade Negotiations - The Role and Impact

Trade negotiations involve discussions between countries to agree on trade rules and reduce trade barriers. They often occur through international institutions like the World Trade Organisation (WTO).
Successful negotiations can open up new markets for businesses, create jobs, and boost economic growth.
However, they can be contentious, as countries have conflicting interests. Developed countries often push for stronger intellectual property rights and free trade in services, while developing countries may want more protection for their agriculture and manufacturing sectors.

Measuring the Impact of Trade Policies

The Trade Freedom Index, part of the Heritage Foundation’s Economic Freedom Index, measures the extent of tariff and non-tariff barriers in a country.
Other measures include the World Bank’s Ease of Doing Business Index, which assesses how trade-friendly a country’s regulations are, and the WTO’s Trade Facilitation Agreement which measures the speed, simplicity and predictability of cross-border commerce.

As with other topics in economics, real-world examples and diagrams can be used to illustrate the impacts of different trade policies. Consider the impact of Brexit on UK-EU trade, or the effects of the US-China trade war, when revising this topic.