Governmental Influence on Trade

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International
Business
Environments & Operations
15e
Daniels
●
Radebaugh
●
Copyright © 2015 Pearson Education, Inc.
Sullivan
6-1
Chapter 6
Governmental
Influence on Trade
Copyright © 2015 Pearson Education, Inc.
6-2
Learning Objectives
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Explain why governments try to enhance and
restrict trade
Compare the potential and actual effects of
government intervention on the free flow of trade
Illustrate the major means by which trade is
restricted and regulated
Demonstrate the business uncertainties and
opportunities created by governmental trade
policies
Discern how businesses may respond to import
competition
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6-3
Introduction
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Protectionism refers to those government
restrictions and incentives designed to help a
county’s domestic firms compete with foreign
competitors at home and abroad.
Protectionist policies……
 negatively affect the ability of foreign
producers to compete in your home market
 enhance your company’s ability to sell abroad
or acquire needed foreign supplies
 are likely to lead to retaliation by affected
stakeholders
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6-4
Conflicting Results of Trade
Policies
Governments intervene in trade to achieve
economic, social, and political goals
 Policymakers are challenged by
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conflicting objectives
interest groups
Stakeholders include workers, owners,
suppliers, local politicians etc.
 Consumers usually don’t care… or, have
very little say in the market
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6-5
Economic Rationales for
Government Intervention
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Why governments intervene in trade
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Economic rationales
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Fighting unemployment
Protecting infant industries
Promoting industrialization
Improving comparative position
Non-economic rationales
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Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
Preserving national culture
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6-6
Instruments of Trade Control
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Tariffs (also called duties) are taxes levied on
(internationally) traded products.
 Exports tariffs, transit tariffs, import tariffs,
levied by the country of destination on
imported products
 A specific duty is a tariff that is assessed on a
per unit basis. An ad valorem tariff is assessed
as a percentage of the value of an item.
Nontariff barriers (NTBs) represent administrative
regulations, policies, and procedures, i.e.,
quantitative and qualitative barriers, that directly
or indirectly impede international trade.
Trade barriers have often been the sources of
conflict among nations and in WTO negotiations
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Instruments of Trade Control:
Nontariff barriers (NTB)
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Nontariff barriers (NTB): Direct Price Influences
 Subsidies
 Aids and Loans
 Customs valuation
Nontariff barriers (NTB): Quantity Controls
 Quotas: VER, Embargoes
 “Buy Local” legislation
 Standards and Labels
 Specific permission requirements (license etc.)
 Administrative delays
Effect of Nontariff Barriers
Effect on
Price
Production
Market
Motivation
Trade
Subsidies Aids and
Loans
Quotas
Buy Local
What measures firms can take to deal
with governmental intervention
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Move operations to lower-cost countries
Concentrate on market niches that attract less
international competition
Opt for internal innovations leading to greater
efficiency and/or superior products
Try to secure government protection
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Dynamics and Complexity
Trade restriction changes bring about
winners and losers among countries,
companies, and workers
 Gains to consumers from freer trade may
come at the expense of companies and
workers
 The international regulatory situation is
becoming more complex
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Copyright © 2015 Pearson Education, Inc.
6-11
Chapter 6: Discussion Questions
1.
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What is protectionism? What are the arguments
for and against protectionism? I may ask you to
explain any specific rationale (e.g., infant
industry argument)
How governments intervene trade with the help
of non-tariff barriers? Explain.
What are the effects of subsidies (or quotas) on
price, production, market, motivation and trade?
Explain.
What measures firms can take to deal with
governmental intervention? Explain.
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permission of the publisher. Printed in the United States of America.
Copyright © 2015 Pearson Education, Inc.
6-13
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