FOREIGN TRADE POLICY

Policies enacted by the government sector of a domestic economy to discourage imports from, and encourage exports to, the foreign sector. The three most common foreign trade policies are tariffs, import quotas, and export subsidies (a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low).

Export subsidy A subsidy to exporters, so that the price per unit received by the producers of exports is higher than the price charged to foreign customers. Direct export subsidies are prohibited by international agreement, but other government measures with similar effects are not uncommon. Exporters may be allowed refunds on tariffs on their inputs, subsidized credit, preferential access to ordinary credit in an economy, or assistance with their capital costs or training costs. In economies with either currency or direct controls on imports, exporters can be allowed priority in the allocation of scarce materials or foreign currency. Firms competing with imports which they claim have received export subsidies may be able to obtain countervailing import duties to offset the effects of these subsidies.

Tariffs and import quotas are designed to discourage imports and export subsidies are designed to encourage exports. The general goal of these foreign trade policies is to create or increase a country's balance of trade surplus, that is, to increase net exports.

Foreign trade policies are government actions, especially tariffs, import quotas, and export subsidies, designed to increase net exports by promoting exports or restricting imports. By increasing net exports (and creating a more "favorable" balance of trade), the domestic production of a nation increases, which then increases domestic income and employment.