ABSTRACT
This chapter aims at providing students of international business, managers, and government officials engaged in global affairs with the basic tools required to analyze the effect of trade policies on the well being of industrial activity. Commercial policy, foreign direct investment incentive and restraints, foreign aid, and subsidies embody most of the instruments used by governments to promote balance of payment surpluses. A tariff is a tax imposed by federal governments on physical good imports when they enter into the country. Tariffs may be imposed as ad-valorem, specific, or as a combination of the two. One way to analyze the effect of a tariff on the welfare of different economic agents is by departing from a situation of market equilibrium in a close economy. A local content rule is a form of quantitative restriction that permits a subsidiary of a multinational corporation to import, free of duty, parts and components in some specified proportion to purchases from domestic producers.
