Professional Documents
Culture Documents
International Business
1
The Nature of Government Intervention
2
Key Concepts
• Protectionism: national economic policies that restrict
free trade, usu. intended to raise revenue or protect
domestic industries from foreign competition.
• Government intervention arises in various forms:
Tariff -- a tax on imports (e.g., citrus, textiles)
Nontariff trade barrier -- government policy,
regulation, or procedure that impedes trade
Quota -- quantitative restriction on imports of a
specific product (e.g., imports of Japanese cars)
Investment barriers – rules or laws that hinder FDI
(e.g., Mexico’s restrictions in its oil industry)
3
Example of Protectionism: U.S. Steel Industry
4
Example of Protectionism: Auto Industry
5
Consequences of Protectionism
6
Rationale for Government Intervention
10
Tariffs are Widespread
13
WTO: A Force for Reducing Tariffs
16
Nontariff Trade Barriers
Government policies that restrict trade without imposing a
direct tax or duty.
• Quotas restrict the physical volume or value of products
that firms can import into a country.
• Voluntary export/import restraints are voluntary quotas
imposed by governments whereby firms agree to limit
exports or imports of certain products.
• Import license – a formal permission to import, which
restricts imports in a way that is similar to quotas- a
complicated, bureaucratic process in some countries
• Government regulations and technical standards – e.g.,
safety regulations for motor vehicles, health regulations for
hygienic food preparation, labeling requirements identifying
country of origin, etc.
• Administrative or bureaucratic procedures
17
Investment Barriers
FDI and ownership restrictions are common in industries
such as broadcasting, utilities, air transportation, military
technology, and financial services, oil, fisheries, etc.
Examples-
• Canada – government restricts foreign ownership of
local movie studios and TV shows to protect its
indigenous film and TV industry from excessive foreign
influence.
• Mexico – government restricts FDI by foreign investors
to protect its oil industry.
• Services sector – FDI and ownership restrictions are
burdensome because services usually cannot be
exported; must establish physical presence in the market
18
Currency Controls
19
Subsidies
21
Investment Incentives
22
Government regulations and technical
standards
25
Market Liberalization in China
26
How Firms Should
Respond to Government Intervention
27
How Firms Should Respond (cont’d)
28
How Firms Should Respond (cont’d)
29