Commercial policy refers to the set of rules and actions a government uses to control and guide its trade with other countries. It mainly focuses on how a country manages imports and exports in order to protect domestic industries, encourage economic growth, and maintain healthy international relations.

In general, commercial policy can be classified into four major types:

1. Protective policy

2. Promotional policy

3. Restrictive policy

4. Free trade policy

Each of these policies reflects a different economic goal and approach to international trade.

1. Protective Policy

A protective policy is designed to protect domestic industries from foreign competition. The main idea is to help local producers survive and grow by making imported goods more expensive or less attractive.

Under this policy, the government commonly uses:

• Import duties (tariffs)

• Quotas on imported goods

• Special taxes on foreign products

• Preferential treatment for domestic firms

By increasing the price of imported goods, consumers are encouraged to buy locally produced items instead.

Objectives of protective policy

The main objectives are:

• To protect infant industries (new and developing industries)

• To safeguard employment in domestic sectors

• To reduce dependence on foreign countries

• To promote national self-reliance

For example, a country may impose high duties on imported steel so that its own steel manufacturers can compete more effectively.

Advantages

• Domestic industries get time to develop and become competitive

• Local employment is protected

• National production increases

Disadvantages

• Consumers often pay higher prices

• Domestic firms may become inefficient due to lack of competition

• Retaliation from other countries may reduce exports

Protective policy is often used by developing countries where industries need support during their early stages.

2. Promotional Policy

A promotional policy focuses on encouraging and expanding exports. Instead of restricting imports, this policy aims to strengthen a country’s presence in international markets.

The government supports exporters by providing:

• Export subsidies and incentives

• Tax concessions for export-oriented firms

• Marketing and information assistance

• Easier access to credit and finance

Objectives of promotional policy

The major objectives include:

• Increasing foreign exchange earnings

• Improving the balance of trade

• Expanding domestic production for international markets

• Creating employment opportunities

Promotional policy is especially important for countries that want to increase their global competitiveness and integrate more deeply into the world economy.

Advantages

• Exports increase and earn foreign currency

• Large-scale production becomes possible

• Industries become more competitive and efficient

• New markets are developed

Disadvantages

• Excessive subsidies may burden the government budget

• Domestic consumers may face shortages if too much output is exported

In practice, promotional policy often works alongside other trade policies rather than replacing them.

3. Restrictive Policy

A restrictive policy aims to control or reduce the volume of imports and sometimes exports. The purpose is not mainly to protect domestic industries, but to manage economic problems such as shortages of foreign exchange or trade imbalances.

This policy is usually adopted during difficult economic situations.

Common tools of restrictive policy include:

• Import quotas

• Licensing systems

• Foreign exchange controls

• Complete bans on certain products

Objectives of restrictive policy

The main objectives are:

• To reduce excessive imports

• To conserve foreign exchange reserves

• To improve the balance of payments

• To control the flow of strategic or harmful goods

For example, when a country faces a shortage of foreign currency, it may restrict the import of luxury goods to save resources.

Advantages

• Helps stabilize the economy in times of crisis

• Prevents unnecessary outflow of foreign exchange

• Supports essential imports by prioritizing them

Disadvantages

• Can create shortages of goods

• May lead to corruption and black markets

• Reduces consumer choice

• Can harm international trade relations

Restrictive policy is generally viewed as a temporary measure rather than a long-term trade strategy.

4. Free Trade Policy

A free trade policy encourages the unrestricted flow of goods and services between countries. Under this policy, trade barriers such as tariffs, quotas, and licensing requirements are reduced or eliminated.

The main principle of free trade is that each country should specialize in producing goods it can make efficiently and exchange them freely with others.

At the global level, organizations such as the World Trade Organization play a major role in promoting free and fair trade among nations.

Objectives of free trade policy

The key objectives are:

• To increase international cooperation

• To encourage specialization and efficiency

• To promote global economic growth

• To reduce the cost of goods for consumers

Advantages

• Consumers get a wider variety of goods at lower prices

• Resources are used more efficiently

• Competition improves product quality

• International economic relations are strengthened

Disadvantages

• Domestic industries may suffer if they cannot compete with foreign firms

• Workers in less competitive sectors may lose jobs

• Over-dependence on foreign suppliers may increase

Free trade policy is usually more suitable for countries with strong and competitive industries.

Comparative View of the Four Policies

Although all four policies relate to international trade, their purposes are different.

• Protective policy focuses on shielding domestic producers.

• Promotional policy concentrates on encouraging exports and market expansion.

• Restrictive policy controls trade mainly to handle economic difficulties.

• Free trade policy aims to remove barriers and promote open markets.

In reality, most countries do not follow only one type of commercial policy. Instead, they adopt a mixed approach. For instance, a country may protect certain sensitive sectors such as agriculture, promote exports of manufactured goods, restrict non-essential imports during economic crises, and at the same time support free trade agreements in other areas.

Conclusion

Commercial policy plays a crucial role in shaping a nation’s economic development and international position. Protective policy helps young and vulnerable industries survive in competitive markets. Promotional policy strengthens a country’s export performance and encourages industrial growth. Restrictive policy provides governments with tools to manage economic instability and protect scarce resources. Free trade policy promotes efficiency, competition, and global cooperation.

The most effective commercial policy is not a rigid or single approach. A balanced combination, adapted to a country’s economic conditions and development goals, allows governments to protect national interests while still benefiting from international trade.