Business-Government
Trade Relations
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• Describe the political, economic and cultural
reasons nations intervene in trade
• Identify the methods that nations use to promote
trade
• Describe the methods that nations use to restrict
trade
• Discuss the main institutions of the global trading
system
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International Business 3e
Chapter 6 - 2
Political Motives
Protect jobs
Preserve national security
Respond to “unfair” trade
Gain influence
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International Business 3e
Chapter 6 - 3
Economic Motives
Protect infant industries
- Protect emerging industries during
development from global competition
Potential results
+ National income increases
– Wrong industries protected
– Firms grow complacent
– Consumer prices rise
– Public funds poorly spent
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International Business 3e
Chapter 6 - 4
Economic Motives
Pursue strategic trade policy
- Help companies achieve economies of
scale and gain a first-mover advantage
Potential results
+ Global industry created
– Firms’ efficiency reduced
– Domestic costs increase
– Special interests benefit
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International Business 3e
Chapter 6 - 5
Cultural Motives
Protect national identity
- Nations block imports deemed harmful
- Usual suspects are US media and
-
consumer goods
Result of increased globalization
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International Business 3e
Chapter 6 - 6
Trade Promotion and Restriction
Trade promotion methods
- Subsidies
- Export financing
- Foreign trade zones
- Special government agencies
Trade restriction methods
- Tariffs
- Quotas
- Embargoes
- Local content requirements
- Administrative delays
- Currency controls
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Chapter 6 - 7
Subsidies
Financial assistance in the form of
cash, tax breaks, price supports, etc.
Potential results
- Increased competitiveness
- Encourage inefficient firms
- Increased consumer prices
- Overuse of resources
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International Business 3e
Chapter 6 - 8
Export Financing
Financing such as low-interest loans
and loan guarantees
Export-Import Bank of the United
States
- Working capital loan guarantees
- Credit information on nation or firm abroad
- Export credit insurance against loss
- Loan guarantees to buyers of U.S. goods
and much more…
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Chapter 6 - 9
Foreign Trade Zones
Designated geographic region in which
merchandise is allowed to pass through
with lower customs duties (taxes) and/or
fewer customs procedures
Purpose is to increase employment and
trade within the nation
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International Business 3e
Chapter 6 - 10
Special Government Agencies
Organize trade missions for officials
and businesses
Operate export-promotion offices at
locations abroad
Help import products the home
nation does not produce
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Chapter 6 - 11
Tariffs
Government tax levied on a product as it
enters or leaves a nation
- Export tariff
- Transit tariff
- Import tariff
Potential results
- Protect domestic firms from competitors
- Generate income for the government
- Reduce competitiveness of home-based firms
- Raise consumer prices
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Chapter 6 - 12
Import and Export Quotas
Restriction on the amount of a good that
can enter or leave a country during a
certain period of time
-
Import Quotas
•
•
-
Protect domestic producers of a good
Force outside firms to compete for market access
Export Quotas
•
•
Retain an adequate domestic supply of a product
Restrict world supply of a product to raise its price
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Embargoes
Complete ban on trade (imports and
exports) in one or more products with a
particular country
- Most restrictive nontariff trade barrier
- Often used to achieve political goals
- Can be difficult for a nation to enforce
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Local Content Requirements
Laws that domestic producers must supply a
specific amount of a good or service
Forces international companies to employ
local resources (usually labor) in production
process
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Chapter 6 - 15
Administrative Delays
Regulatory controls or bureaucratic rules to
slow imports into a country
- Inconvenient ports for imports
- Product-damaging inspections
- Understaffed customs offices
- Lengthy licensing procedures
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Chapter 6 - 16
Currency Controls
Restrictions on the convertibility of a
nation’s currency
- Limit the amount of globally accepted
currency available to pay for imports
- Set an unfavorable exchange rate when
paying for imports
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International Business 3e
Chapter 6 - 17
General Agreement on
Tariffs and Trade (GATT)
Treaty designed to promote free trade
by reducing tariffs and nontariff
barriers to trade
Uruguay Round
- Extended coverage to services
- Improved intellectual property rules
- Reduced trade barriers in agriculture
- Established the WTO
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International Business 3e
Chapter 6 - 18
World Trade Organization (WTO)
International organization that
regulates trade between nations
- Normal trade relations (“most-favored-
-
nation status”)
Dispute Settlement Body
Dumping and antidumping duties
Doha Round of trade talks
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Chapter 6 - 19