Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

6 Business-Business-GovernmentGovernment

Trade RelationsTrade Relations

6 - 2Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Political MotivesPolitical Motives

Protectjobs

Preservenationalsecurity

Respond to“unfair”

trade

Gaininfluence

6 - 3Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Economic Motives IEconomic Motives I

Potential results

+ National income increases

– Wrong industries protected

– Firms grow complacent

– Consumer prices rise

– Public funds poorly spent

Protect infant industries

Protect emerging industries during development from global competition

6 - 4Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Economic Motives IIEconomic Motives II

Potential results

+ Global industry created

– Firms’ efficiency reduced

– Domestic costs increase

– Special interests benefit

Pursue strategic trade

policyHelp companies to achieve economies of scale and gain a first-mover advantage

6 - 5Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Cultural MotivesCultural Motives

Result of increasedResult of increasedglobalizationglobalization

Nations block importsNations block importsdeemed harmfuldeemed harmful

Usual suspectsUsual suspectsare U.S. media andare U.S. media and

consumer goodsconsumer goods

Protect national identity

6 - 6Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Trade Promotion and Trade Promotion and RestrictionRestriction

Trade promotionmethods

Trade restrictionmethods

Subsidies

Export financing

Foreign trade zones

Special government agencies

Tariffs

Quotas

Embargoes

Local content requirements

Administrative delays

Currency controls

6 - 7Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Financial assistance in the form of cash, tax breaks, price supports, etc.

SubsidiesSubsidies

Potential results

+ Increased competitiveness

– Encourage inefficient firms

– Increased consumer prices

– Overuse of resources

6 - 8Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Export FinancingExport Financing

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…

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…

Financing such as low-interest loans and loan guaranteesFinancing such as low-interest loans and loan guarantees

6 - 9Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Designated 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

Foreign Trade ZonesForeign Trade Zones

6 - 10Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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

6 - 11Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Tariffs

Potential results

+ Protect domestic firms from competitors+ Generate income for the government

– Reduce competitiveness of home-based firms– Raise consumer prices

Export tariff

Transit tariff

Import tariff

Government tax levied on a product as it enters or leaves a nation

6 - 12Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Import and Export QuotasImport 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

1. Protect domestic producers of a good

2. Force outside firms to compete for market access

Export Quotas

1. Retain adequate domestic supply of a product

2. Restrict world supply of a product to raise its price

6 - 13Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

EmbargoesEmbargoes

Complete ban on trade (imports and exports)in one or more products with a particular country

Can be difficult for a nation to

enforce

Often used to achieve political

goals

Most restrictive nontariff trade

barrier

6 - 14Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Local Content Requirements

Laws that domestic market must supply a specific amount of a product

Forces international companies toemploy local resources in production process

6 - 15Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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

6 - 16Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Currency Controls

Restrictions on theconvertibility of a currency Limit the amount of

globally accepted currency available to pay for imports

Set an unfavorable exchange rate when paying for imports

6 - 17Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

General Agreement onGeneral Agreement onTariffs and Trade (GATT)Tariffs and Trade (GATT)

Early Success:• Tariffs down 35%• Trade up 2,000%

Then Problems:• Nontariff barriers• Services left out

6 - 18Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Uruguay NegotiationsUruguay Negotiations

Improved intellectual property rules

Extended coverage to services

Created World Trade Organization

Reduced agriculture barriers

6 - 19Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

World Trade Organization World Trade Organization (WTO)(WTO)

Dispute settlement bodyDispute settlement body

Doha trade talks Doha trade talks

Normal trade relations status Normal trade relations status

Dumping and antidumpingDumping and antidumping