The macroeconomics of commercial policy and the trade balance: A policy perspective

Abstract

Is commercial policy a viable tool for correcting trade imbalances? Using the macroeconomic identity where the trade deficit is equal to net national savings, the theoretical channels through which commercial policy could impact the trade balance are investigated. Although there are numerous possible channels, there is presently little theoretical consensus or empirical evidence to suggest that commercial policy can have a permanent and significant impact on national savings or the trade balance. In macroeconomic models with unemployment, commercial policy has more potential in this regard; however, the practical policy relevance of this finding is of limited importance. The desirability of correcting a trade imbalance considering the alternatives and consequences is discussed.