Controlling Imports and Exports

It is possible for Countries to influence the trade of its industries by controlling the numbers of imports and exports passing  over the country's borders. Of course a Government wants to help the domestic firms which means that a Government's trade policy will aim to maximise exports and minimise imports. This is due to balance of trade. Imports are seen as a cash outflow in that money from this country is used to buy goods and services from another country and so benefits their economy as opposed to our own. Exports on the other had benefit the domestic economy as the cash raised from the sale of goods sold to overseas consumers is put into our economy. Hence if we can keep exports higher than imports we are on our way to having a trade surplus / current account surplus.

So, how does the Government control imports and exports?

Import Protection - Quotas

Quotas are basically limits put on goods coming into the country. Say the number of Chinese T-Shirts allowed into the UK in a given year was 10 million. Therefore this means that if the demand for T-Shirts in the UK exceeded 10 million shirts per year they would have to buy form domestic firms which is good for the economy. This ensures the amount of cash spent on shirt imports is capped and so good for forecasting. However whereas it means domestic firms can compete with foreign imports, it gives consumers less choice and if the quota is reached, may be forced to buy a more expensive T-Shirt from a domestic firm.

Import Protection - Tariffs

Tariffs are taxes put on imported goods (so an import tax). It means that any number of T-Shirts can be imported, but at a higher price when taking into account the tax on top of the price. This is an incentive for consumers to use domestic firms as the tariff obviously doesn't apply to domestically produced goods. Again it limits choice and lessens the incentive of firms to lower their costs and prices if the tariff naturally eliminates some of the competition.

Export Incentives - Export Subsidy

Export Subsidies often form part of the Government's Supply Side Policy. Subsidies such as the EU's Common Agricultural Policy (CAP) encourages domestic producers to increase their output and produce more crops etc. to ensure that not only is there enough to feed the EU population but there is more to export. If output increases more than the extra costs incurred, they can lower prices and so become more competitive in the global marketplace. However it is arguable that it is unfair for countries outside of the EU who are dependent on selling their produce to survive. Therefore it is controversial but ensures that a country's trade situation improves.