Case Analysis
bora
Session13-Govtsandtrade-Outline.pdf
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Governments and Trade
Learning objectives ! Explain why governments try to enhance and restrict trade ! Show the effects of pressure groups on trade policies ! Compare the potential and actual effects of government
intervention on the free flow of trade ! Illustrate the major means by which trade is restricted and
regulated
Learning Objectives " Demonstrate the business uncertainties and opportunities
created by governmental trade policies " Discern how businesses may respond to import competition " Fathom how the growing complexity of products and trade
regulations may affect the future
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
Conflicting Results of Trade Policies • Governments intervene in trade to achieve economic, social,
and political goals • Policymakers are challenged by
• conflicting objectives • interest groups
The Role of Stakeholders • Proposed policies on trade spark debate • Stakeholders include
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• Proposed policies on trade spark debate • Stakeholders include
– Workers – Owners – Suppliers – Local politicians
• Consumers usually don’t care
Economic Rationales for Government Intervention • Why governments intervene in trade
– Economic rationales • Fighting unemployment • Protecting infant industries • Promoting industrialization • Improving comparative position
– Non-economic rationales • Maintaining essential industries • Promoting acceptable practices abroad • Maintaining or extending spheres of influence • Preserving national culture
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
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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production • Used by developing countries
Developing an industrial base • Countries promote industrialization because it
– brings faster growth than agriculture – brings in investment funds – diversifies the economy – creates growth in manufactured goods – reduces imports and promotes exports – helps the nation-building process
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
Noneconomic Rationales for Government Intervention • Noneconomic rationales include
• Maintaining essential industries • Promoting acceptable practices abroad • Maintaining or extending spheres of influence • Preserving national culture
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
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– determine which industries are essential – consider costs and alternatives – consider political consequences
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
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
• A country’s trade restrictions may coerce governments to follow certain political actions or punish companies whose governments do not
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
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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• those that directly limit the amount of a good that can be traded
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
Nontariff Barriers: Direct Price Influencers • Subsidies
– direct assistance to companies to make them more competitive • agricultural subsidies • overcoming market imperfections • valuation problems
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
Nontariff Barriers: Quantity Controls • “Buy local” legislation • Standards and labels • Specific permission requirements
• import or export license • Administrative delays • Reciprocal requirements
• Countertrade or offsets • Restrictions on services
Dealing with Governmental Trade Influencers • Companies facing import competition can
• Move abroad • Seek other market niches • Create greater efficiency or superior products • Try to get governmental protection
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
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
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• 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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