Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 7-1 International Business Environments & Operations 14e Daniels ● Radebaugh ● Sullivan

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

7-1

International Business

Environments & Operations

14e

Daniels ● Radebaugh ● Sullivan


7-2

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


7-4

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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Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 7-1 International Business Environments & Operations 14e Daniels ● Radebaugh ● Sullivan