GFMA 2023 INTERNATIONAL BUSINESS

CHAPTER  SIX:  
THE  POLITICAL  ECONOMY  OF  
INTERNATIONAL  TRADE  
 GFMA 2023 INTERNATIONAL BUSINESS

INTRODUCTION  
• Free  trade  occurs  when  governments  do  not  aAempt  to  
restrict  what  ciDzens  can  buy  from  or  what  they  can  sell  to  
another  country.  

2  
 GFMA 2023 INTERNATIONAL BUSINESS

INSTRUMENTS  OF  TRADE  POLICY  

Tariffs "

Administrative Subsidies"
policies "

Seven main
instruments for
governments
to intervene in
international
Antidumping trade:"
Import quotas"
policies "

Local content Voluntary export

requirements " restraints"
 GFMA 2023 INTERNATIONAL BUSINESS

TARIFFS  
• Defined  ad  taxes  levied  on  imports  that  effecDvely  raise  the  
cost  of  imported  products  relaDve  to  domesDc  products  
• Divided  into  two:  Specific  tariffs  &  Ad  valorem  tariffs  

Force consumers to
Increase government
Tariff:" pay more for certain
revenues"
imports"
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SUBSIDIES  
Subsidies  help  domesDc  producers  to  
Subsidies  are  the  government  payments  
compete  against  low-­‐cost  foreign  
to  domesDc  producer.  
imports  and  gain  export  markets.  

IMPORT  QUOTAS  
Import  Quotas  is  restricDng  the  quanDty  of  
Import  quotas  are  divided  into  two:  Tariff  
some  good  that  may  be  imported  into  a  
rate  quotas  &  quota  rent.  
country.  
 GFMA 2023 INTERNATIONAL BUSINESS

VOLUNTARY  EXPORT  RESTRAINTS  (VER)  

VER  are  quotas  on  trade  imposed  by  the  
Import  quotas  and  VER  benefit  domesDc  
exporDng  country,  typically  at  the  
producers  and  raise  the  prices  of  
request  of  the  imporDng  country’s  
imported  goods  
government.  

LOCAL  CONTENT  REQUIREMENTS  (LCR)  

LCR  demand  that  some  specific  
fracDon  of  a  good  to  be  produced   LCR  benefits  domesDc  producers  
domesDcally.  

 
 
 GFMA 2023 INTERNATIONAL BUSINESS

ADMINISTRATIVE  POLICIES  
• AdministraDve  Polices  are  bureaucraDc  rules  designed  to  
make  it  difficult  for  imports  to  enter  a  country  by  limiDng  
choice  to  consumers.  

ANTIDUMPING  POLICIES  
AnDdumping  Policies/Countervailing  
DuDes  are  designed  to  punish  foreign   Dumping  means  selling  goods  in  a  
firms  that  engage  in  dumping  and   foreign  market  below  their  costs  of  
protect  domesDc  producers  from   producDon.  
“unfair”  foreign  compeDDon.  

 
 
 GFMA 2023 INTERNATIONAL BUSINESS

CONCLUSION
an industry should be protected
until it can develop and be viable
and competitive internationally
(The infant industry argument )"
governments can help firms from
their countries attain important
first mover advantages
(Strategic trade policy )"

Various
methods used
by government
to intervene in
markets
because:"