Balance of Trade ( Surplus and Deficit)

Question

I'm new to economics. I want to ask that what remedies that the government can actually employ to address the deficit/surplus in the fish trade balances over time?

My attempt,

Trade deficit

(i) The government can strengthen the diplomatic relationship with foreign countries by signing five to ten years contract with the purpose of buying more Malaysia’s fish commodities but at a lower price. This action can increase the export of our country’s fish commodities and earn a long term profit. (ii) Provide the export incentive to local fish industries in order to help them remain competitive in the global market by exporting more fish commodities. Export incentive will reduce the cost of export and therefore increase the competitive force of local industry in global market.

Trade surplus

(i) the government can eliminate the trade tariff in order to induce foreign countries to import more fish commodities in our country. This will make the import and export of Malaysia equivalence. (ii) The government can buy the fish commodities surplus of local fish industries and store them to reduce the export.

Is my answers correct? Is there better solution? Thanks in advance.

Answer 1

Your first response to the trade deficit would seem to increase imports and not exports, unless I'm misunderstanding and you are writing from the perspective of Malaysia. In that case, the policy might be otherwise flawed due to the lower amount a fisher would supply given a lower price for exportation. While you may reach an agreement with other countries to import fish, your fishers must still, as private individuals, be incentivized to supply fish for this trade. I believe a better solution would just be the opposite of that in your first trade surplus answer, raising tariffs.

Answer 2

Actually, if you have low friction in your trade such as low tariffs and/or custom's inspection times then the answer should be to do nothing. If people want to buy more fish from foreign countries than they sell to foreign countries or vice versa, then they are happy. If it made them unhappy, they would do something else (technically we should be talking in terms of utility or satisfaction but for most people with fish that is happiness).

A trade deficit in fish has to be made up somewhere else either with temporary credits or with trade in other markets such as tin or paper. A naturally happening trade deficit in fish is a very good thing. It should not be interfered with. The system will balance itself out over time, maybe decades, in overall trade. Barring market manipulation by a trading partner, you should do nothing at all except sit back and eat the fish.

In the event of manipulation, you still possibly should do nothing. Imagine if the Singaporean government paid its fishermen $1 per pound per fish as a subsidy, undercutting your prices. That is great, Singapore's tax dollars are being paid to Malaysia's fish eating public. Why argue with Singapore's desire to pay Malaysia money?