Commercial Policy

What Is Commercial Policy?

Commercial policy is an umbrella term that describes the regulations and policies that dictate how companies and individuals in one country conduct commerce with companies and individuals in another country.

Commercial policy is sometimes referred to as trade policy or international trade policy.

Understanding Commercial Policy

Commercial policy is one of the most fundamental purposes of a country's government. In the United States, the administration of commercial policy is a role that the federal government has assumed since the country’s founding; tariffs on imported goods were the main source of funding for the federal government from America’s beginning until the early twentieth century. 

Tariffs are taxes that are levied on the sale of foreign goods in a home country. Tariffs are just one element of commercial policy. Other policies that fall under the umbrella of commercial policy include import quotas, export constraints, and restrictions against foreign-owned companies operating domestically.

Another major element of commercial policy is government-provided subsidies to domestic industries that enable those companies to better compete with their counterparts abroad.

Sometimes these goals are in conflict with each other. For example, it is impossible to both raise tariffs to protect domestic industries while also pursuing a policy of reciprocal lowering of trade barriers in an effort to increase exports.

Historically, there have always been constituencies within the U.S. that have advocated for a more robust commercial policy. However, for the first third of the country’s history, the purpose of commercial policy was mainly directed towards raising revenue. From the Civil War through the Great Depression, the extent of commercial policy was largely directed at protecting domestic manufacturing industries. In the decades following World War II, there was a bipartisan consensus toward a reciprocal lowering of tariffs in an effort to open up foreign markets to American producers. 

President Trump's administration shifted the purpose of commercial policy in an effort to protect U.S. industries through tariffs. The effects or efficacy of Trump's trade policies have yet to be determined. However, with the world economy becoming more globalized, many companies and supply chains are distributed across borders, making the effects of new and higher tariffs difficult to ascertain.