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Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
7-1
International Business
Environments & Operations
14e
Daniels ● Radebaugh ● Sullivan
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Chapter 7
Governmental Influence on Trade
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Learning Objectives To explain the rationales for governmental
policies that enhance and restrict trade To show the effects of pressure groups on trade
policies To describe the potential and actual effects of
governmental intervention on the free flow of trade
To illustrate the major means by which trade is restricted and regulated
To demonstrate the business uncertainties and business opportunities created by governmental trade policies
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Introduction Protectionism - policies that
affect the ability of foreign producers to compete in your home market
limit or enhance your company’s ability to sell abroad or acquire needed foreign supplies
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IntroductionPhysical and Social Factors Affecting the Flow of Goods and Services
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Conflicting Results of Trade Policies
Governments intervene in trade to achieve economic, social, and political goals
Policymakers are challenged by conflicting objectives interest groups
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The Role of Stakeholders Proposed policies on trade spark debate Stakeholders include
Workers Owners Suppliers Local politicians
Consumers usually don’t care
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Economic Rationales for Government InterventionLearning Objective 1: To explain the rationales for governmental policies that enhance and restrict trade
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Economic Rationales for Government Intervention
Why Governments Intervene in Trade
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Fighting UnemploymentLearning Objective 2: To show the effects of pressure groups on trade policies
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Fighting Unemployment The unemployed are the most effective pressure
group But, import restrictions
can lead to retaliation by other countries are less likely retaliated against effectively by small
economies are less likely to be met with retaliation if implemented
by small economies may decrease export jobs because of price increases for
components may decrease export jobs because of lower incomes
abroad
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Protecting ‘Infant Industries’
Learning Objective 3: To describe the potential and actual effects of governmental intervention on the free flow of trade
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Protecting ‘Infant Industries’
The infant industry argument government protection of import competition is
necessary to help certain industries evolve from high-cost to low-cost production
Used by developing countries
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Developing an Industrial Base
Countries promote industrialization because it brings faster growth than agriculture brings in investment funds diversifies the economy brings more income than primary products do reduces imports and promotes exports helps the nation-building process
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Developing an Industrial Base
The industrialization argument unregulated imports of lower priced products
prevents the development of a domestic industry
Assumptions Surplus Workers Investment Inflows Diversification Growth in Manufactured Goods Import Substitution and Export-Led
Development Nation Building
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Economic Relationships With Other Countries
Trade controls can be used to improve the balance of payments to gain fair access to foreign markets
comparable access argument as a bargaining tool
believability and importance to control prices
dumping optimum-tariff theory
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Noneconomic Rationales for Government Intervention
Noneconomic rationales include Maintaining essential industries Promoting acceptable practices abroad Maintaining or extending spheres of influence Preserving national culture
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Maintaining Essential Industries
The essential industry argument protect essential industries so the country is
not dependent on foreign supplies during war Countries must
determine which industries are essential consider costs and alternatives consider political consequences
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Promoting Acceptable Practices Abroad
Import trade controls can be used to promote changes in foreign countries’
political policies or capabilities as a foreign policy weapon to pressure governments to alter their stances
on a variety of issues human rights environmental protection
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Maintaining or Extending Spheres of Influence
Governments provide assistance and encourage imports from countries that join a political alliance or vote a preferred way within international bodies Cotonou Agreement
A country’s trade restrictions may coerce governments to follow certain political actions or punish companies whose governments do not
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Preserving National Culture
In order to preserve national culture, countries limit foreign products and services in certain
sectors Canada’s cultural sovereignty
prohibit exports of art and historical items deemed important to national heritage
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Instruments of Trade Control
Learning Objective 4: To illustrate the major means by which trade is restricted and regulated
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Instruments of Trade Control
Two types of trade controls those that indirectly affect the amount traded
by directly influencing prices of exports or imports
those that directly limit the amount of a good that can be traded
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Tariffs Tariffs are also known as duties
refer to a government levied tax on goods shipped internationally
Tariffs may be levied on goods entering, leaving, or passing through
a country for protection or revenue on a per unit basis or a value basis
export tariffs transit tariffs import tariffs
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Nontariff Barriers: Direct Price Influencers
Subsidies direct assistance to companies to make them
more competitive agricultural subsidies overcoming market imperfections valuation problems
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Nontariff Barriers: Direct Price Influencers
Aid and loans tied untied
Customs valuation Other direct-price influences
special fees and requirements
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Nontariff Barriers: Quantity Controls
Quotas limit the quantity of a product that can
be imported or exported in a given time frame
Voluntary export restraint (VER)Embargoes
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Nontariff Barriers: Quantity Controls
“Buy local” legislation Standards and labels Specific permission requirements
import or export license Administrative delays Reciprocal requirements Restrictions on services
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Dealing with Governmental Trade Influencers
Learning Objective 5:To demonstrate the business uncertainties and business opportunities created by governmental trade policies
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Dealing with Governmental Trade Influencers
Companies facing import competition can Move abroad Seek other market niches Make domestic output competitive Try to get protection
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Tactics For Dealing With Import Competition
Convince decision makers of the merits of particular policies
Involve the industry and stakeholders Prepare for changes in the competitive
environment
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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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