Stability of Government Policies

 Radical shifts in government philosophy can

occur when:
• An opposing political party governs to
power
• Pressure from nationalist and self-
interest groups
• Declined economic conditions
• conflicts between governments

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Instability of Governments and Policies:
Political Reasons

• Some forms of government seem to be

unstable
• Changes in political parties during
elections can have major effects on trade
conditions
• Nationalism
• Hatred targeted toward specific
countries
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Political Parties
 Be knowledgeable about the philosophies of
all major political parties and their attitudes
towards trade
In the UK, for example,
 the Labour Party traditionally has been more
restrictive regarding foreign trade than the
Conservative Party

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Nationalism
 Nationalism refers to feelings of national pride
and unity
• Feelings of nationalism are showed by:
• Disaster (e.g. 9/11)
• War
• Recession
• Call to “buy our country’s products only,” e.g., “Buy
American”
• Restrictions on imports, restrictive tariffs, and other
barriers to trade

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Targeted Fear and/or Animosity

Nationalism
• Targets all foreign
countries Animosity
• Targets specific nations

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Economic Risks
 International firms face a variety of economic
risks
 Governments can impose restraints on
business activity to:
• Protect national security
• To conserve scarce foreign exchange
• Raise revenue

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Economic Risks
 Exchange Controls
 Local Laws
 Import Restrictions
 Tax Controls
 Price Controls
 Labor Problems

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6-8
Politically Sensitive Products and Issues

 Politically sensitive products include

those that have an effect on:
• the environment,
• exchange rates
• national and economic security
• public health, e.g., genetically
modified foods
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6-10
Government Encouragement

 Governments can both encourage and

discourage foreign investment
 The key reason to encourage foreign
investment is to speed up the
country’s economic growth

6-11