International Business

Chapter Seven

Governmental Influence on Trade

Conflicting Results of Trade Policies

Why governments intervene? - Governments intervene trade for the good of the citizens (or, does it really?) - Arguments for and against trade policies Protectionism refers to those government restrictions and incentives specifically designed to help a countys domestic firms compete with foreign competitors at home and abroad. Protectionist measures are likely to lead to retaliation by affected stakeholders.

Why Governments Intervene in Trade

ECONOMIC RATIONALES NONECONOMIC RATIONALES

Fighting unemployment Protecting infant industries Promoting industrialization Improving comparative position

Maintaining essential industries Dealing with unfriendly countries Maintaining or extending spheres of influence Preserving national identity
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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 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.
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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

Effect of Nontariff Barriers

Effect on Price
Subsidies Aids and Loans Quotas Buy Local

Production
Market Motivation Trade

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

Chapter 7: Discussion Questions

1.

OR
1. 2. 3.

Do trade governmental trade policies benefit the citizens? Explain the rationale for (or against) governmental intervention in trade.
What is protectionism? What are the arguments for and against protectionism? 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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4.