International Business

Environments & Operations

14e Global Edition
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 discuss instruments of trade control To describe the potential and actual effects of governmental intervention on the free flow of trade To demonstrate the business uncertainties and business opportunities created by governmental trade policies To explain how firm can respond to government intervention.
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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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Economic Rationales for Government Intervention

Learning 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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Economic rationale
1.

2.

Fighting unemployment Protecting infant industries

government protection of import competition is necessary to help certain industries evolve from highcost to low-cost production Countries promote industrialization because it

3.

Promoting industrialization

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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Economic rationale
4.

Improving comparative position

Trade controls can be used

to improve the balance of payments to gain fair access to foreign markets as a bargaining tool to control prices

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Noneconomic Rationales
1.

Maintaining essential industries

protect essential industries so the country is not dependent on foreign supplies during war 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

2.

Promoting acceptable practices abroad

3. 4.

Maintaining or extending spheres of influence Preserving national culture

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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

on goods entering, leaving, or passing through a country on a per unit basis or a value basis export tariffs transit tariffs import tariffs
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Tariffs may be levied

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Nontariff Barriers: Direct Price Influencers

Subsidies

direct assistance to companies to make them more competitive tied untied

Aid and loans

Customs valuation Other direct-price influences

special fees and requirements

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Nontariff Barriers: Quantity Controls

Quotas

Voluntary export restraint (VER) Embargoes

Local content requirement Arbitrary standard Licensing agreement import or export license Administrative delays Reciprocal requirements Restrictions on services
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Dealing with Governmental Trade Influencers

Learning Objective: To demonstrate the business uncertainties and business opportunities created by governmental trade policies

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Types and Effects of Government Intervention

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Government Intervention Types and Effects (contd)

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Government Intervention Types and Effects (contd)

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How Firms Should Respond to Government Intervention

Research to gather knowledge and intelligence. Choose the most appropriate entry strategies. Seek favorable customs classifications for exported products Take advantage of investment incentives and other government support programs.
Examples The government of Hong Kong put up much of the cash to build the Hong Kong Disney Park.

Lobby for freer trade and investment.

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