TRADE POLICIES

Arhaan Oberai(individual)

Trade in the most basic form of definition means buying and selling of goods or
services between people or countries. There are certain rules and regulations
governing the functions of trade in order to maintain harmony in the
marketplace. A spectrum of these policies is formed by the respective
governments like quantity of goods and services to be traded. Free trade is when
there are no government restrictions on trade. Protectionism is when
government imposes these trade policies to protect the domestic markets from
foreign competition.

1st INDICATOR – EXCHANGE RATES

“The value of one currency for the purpose of conversion to other”
A higher valued currency makes a country’s imports less expensive and
exports more expensive in foreign markets. Cross rates are a method of
quoting exchange rates in which various foreign currency exchange rates
are used to imply a domestic exchange rate, e.g., if you wanted to determine
the EUR/USD exchange rate but can’t access a direct quote. You could use
the EUR/CAD exchange rate and the CAD/USD exchange rate to infer the
EUR/USD rate.
EXPORTS AND IMPORTS- A country’s net exports or imports impact currency
value and exchange rates. A domestic country that exports more goods than it
imports will experience a higher demand for its currency, and thereby, will see
its exchange rate increase relative to other foreign currencies.
GOVERNMENT DEBT- Government debt is the amount of debt owed by a
federal government. It impacts currency value and exchange rates since a
country with higher debt is less likely to acquire foreign capital, which, in turn,
leads to inflation. It puts downward pressure on the domestic currency and
decreases its value in exchange rates.
POLITICAL STABILITY- The political state of a country influences the
currency value and exchange rates since a country with higher political turmoil
is less likely to attract foreign investors. Political instability fosters more risk for
investors, as they are unsure of whether they will see their investments
protected via fair market practices or a strong legal system.

2nd INDICATOR- TARIFFS

A tariff is a tax on imports and exports of goods between countries. It’s a form
of regulation of foreign trade and a policy that taxes foreign products to make
them expensive and safeguard domestic industries. A 3% tariff on corn would be
a 3% tax added to the cost of corn paid by any domestic importer of corn from
abroad.
RAISING REVENUES- Tariffs can be used to raise revenues for governments.
This kind of tariff is called a revenue tariff and is not designed to restrict
imports. For instance, in 2018 and 2019, President Donald Trump and his
administration put tariffs on many items to rebalance the trade deficit. In the
fiscal year 2018, customs duties received were $41.6 billion. In fiscal year
2019, duties received were $71.9 billion.
PROTECT DOMESTIC INDUSTRIES- Governments can use tariffs to benefit
particular industries, often doing so to protect companies and jobs. For
example, in April 2018, President Donald Trump imposed a 25% ad valorem
tariff on steel articles from all countries except Canada and Mexico.
 3rd INDICATOR- EXPORT AND IMPORT COMPOSITION
India’s overall export(Merchant and Services combined) in May 2023 is
estimated to be USD 60.29 billion and overall import in May 2023 is estimated
to be USD 70.64 billion. Petroleum and Crude products, plastic materials,
Pearls, Gold, Electronic goods, textile etc. are some of the top most exported
goods from India.
When a country opens up to trade, capital and labor shift towards industries
which they are more efficient in, as a result the movement provides the society a
higher level of economic welfare.
DEVELOPMENT- The ability to trade also allows access to goods and services
that might be of higher quality and lower cost than its domestic alternative. In
some cases, there may be no domestic alternative, and trade would then provide
a resource that would otherwise be unattainable.
EMPLOYMENT- Trade has a both positive and negative effect on employment.
It can create jobs through growth in the export industry but it can also lead to
job displacement and industry restructuring.