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TRANSCRIPT
Copyright © 2015 Pearson Education, Inc. 6-1
International Business
Environments & Operations
15e
Daniels ● Radebaugh ● Sullivan
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Chapter 6
Governmental Influence on Trade
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Learning Objectives 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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Introduction 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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Conflicting Results of Trade Policies
Governments intervene in trade to achieve economic, social, and political goals
Policymakers are challenged by 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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Economic Rationales for Government Intervention
Why governments intervene in trade Economic rationales
Fighting unemployment Protecting infant industries Promoting industrialization Improving comparative position
Non-economic rationales Maintaining essential industries Promoting acceptable practices abroad Maintaining or extending spheres of influence Preserving national culture
7
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 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
Instruments of Trade Control: Nontariff barriers (NTB)
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 Subsidies Aids and Loans
Quotas Buy Local
Price
Production
Market
Motivation
Trade
10
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 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
12
Chapter 6: Discussion Questions
1. 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)
2. How governments intervene trade with the help of non-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.
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