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International Business

Chapter Seven

Governmental Influenceon Trade

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Conflicting Results of Trade Policies

Why governments intervene?- Governments intervene trade for the good ofthe citizens (or, does it really?)- Arguments for and against trade policies

Protectionism refers to those governmentrestrictions and incentives specifically designed tohelp a countys domestic firms compete withforeign competitors at home and abroad.Protectionist measures are likely to lead toretaliation by affected stakeholders.

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Why Governments

Intervene in Trade

ECONOMIC RATIONALES NONECONOMIC

RATIONALES

Fighting unemployment Maintaining essentialindustries

Protecting infantindustries

Dealing with unfriendlycountries

Promotingindustrialization Maintaining or extendingspheres of influence

Improving comparativeposition

Preserving nationalidentity

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Instruments of Trade Control

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 dutyis a tariff that is assessed on a

per unit basis. An ad valorem tariffis assessedas a percentage of the value of an item.

Nontariff barriers (NTBs) represent administrative

regulations, policies, and procedures, i.e.,quantitative and qualitative barriers, that directlyor indirectly impede international trade.

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Instruments of Trade Control:

Nontariff barriers (NTB)

Nontariff barriers (NTB): Direct PriceInfluences

Subsidies Aids and Loans

Customs valuation

Nontariff barriers (NTB): Quantity Controls Quotas: VER, Embargoes

Buy Local legislation

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Effect of Nontariff Barriers

Effect on Subsidies Aids andLoans

Quotas Buy Local

Price

Production

Market

Motivation

Trade

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What measures firms can take to deal

with governmental intervention

Move operations to lower-cost countries

Concentrate on market niches that attract less

international competition

Opt for internal innovations leading to greaterefficiency and/or superior products

Try to secure government protection

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Chapter 7: Discussion Questions

1. Do trade governmental trade policies benefit thecitizens? Explain the rationale for (or against)governmental intervention in trade.

OR

1. What is protectionism? What are the arguments forand against protectionism?

2. How governments intervene trade with the help ofnon-tariff barriers? Explain.

3. What are the effects of subsidies (or quotas) on

price, production, market, motivation and trade?Explain.4. What measures firms can take to deal with

governmental intervention? Explain.