International

Business
Environments & Operations
Daniels ● Radebaugh ● Sullivan
 Chapter 6
Governmental
Influence on Trade
 Learning Objectives
6-1 Recognize the conflicting outcomes of trade
protectionism
6-2 Assess governments’ economic rationales with
international trade intervention
6-3 Assess governments’ noneconomic rationales
with international trade intervention
6-4 Describe the major instruments of trade
control
6-5 Classify how companies deal with
governmental trade influences
 Learning Objectives
6-1 Recognize the conflicting outcomes of trade
protectionism
6-2 Assess governments’ economic rationales with
international trade intervention
6-3 Assess governments’ noneconomic rationales
with international trade intervention
6-4 Describe the major instruments of trade
control
6-5 Classify how companies deal with
governmental trade influences
 Introduction
Learning Objective6-1:
Recognize the conflicting outcomes of
trade protectionism

5-5
 Introduction
What is protectionism?

Why do governments intervene in trade?

How do stakeholders influence on trade?

 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

6-7
 Introduction
Physical and Social Factors Affecting the Flow of Goods and Services

6-8
 Conflicting Results
of Trade Policies
 Governments intervene in trade to achieve
economic, social, and political goals
 Policymakers are challenged by
 conflicting objectives
 interest groups

6-9
 The Role of Stakeholders
 Proposed policies on trade spark debate
 Stakeholders include
 Workers
 Owners
 Suppliers
 Local politicians
 Consumers usually don’t care

6-10
 Why Government Intervenes in Trade

Why Governments Intervene in Trade

 Economic Rationale for Trade Restrictions
Learning Objective6-2:
Assess governments’ economic rationales
with international trade intervention

5-12
 Economic Rationales for
Government Intervention
 Why governments intervene in trade
 Economic rationales
 Fighting unemployment
 Protecting infant industries
 Promoting industrialization
 Improving comparative position

6-13
 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

6-14
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

6-15
 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

6-16
 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

6-17
 Noneconomic Rationales for
Government Intervention
 Noneconomic rationales include
 Maintaining essential industries
 Promoting acceptable practices abroad
 Maintaining or extending spheres of influence
 Preserving national culture

6-18
Noneconomic Rationale for Trade Restrictions
Learning Objective6-3:
Assess governments’ noneconomic
rationales with international trade
intervention

5-19
 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
 consider political consequences

6-20
 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

6-21
 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
 Cotonou Agreement
 A country’s trade restrictions may coerce
governments to follow certain political
actions or punish companies whose
governments do not

6-22
 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

6-23
Instruments of Trade Control
Learning Objective6-4:
Describe the major instruments of
trade control

6-24
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

6-25
 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

6-26
 Nontariff Barriers:
Direct Price Influencers
 Subsidies
 direct assistance to companies to make them
more competitive
 agricultural subsidies

 overcoming market imperfections

 valuation problems

6-27
 Nontariff Barriers:
Direct Price Influencers
 Aid and loans
 tied
 untied
 Customs valuation
 Other direct-price influences
 special fees and requirements

6-28
 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

6-29
 Nontariff Barriers:
Quantity Controls
 “Buy local” legislation
 Standards and labels
 Specific permission requirements
 import or export license
 Administrative delays
 Reciprocal requirements
 Countertrade or offsets

6-30
 Nontariff Barriers:
Service Industries
 Service Industries
 Four factors to consider
 Essentiality

 Not-for-Profit Services

 Standards

 Immigration
 Dealing with Governmental
Trade Influencers
Learning Objective6-5:
Classify how companies deal with
governmental trade influences

6-32
 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

6-33
 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

6-34
 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 expense of companies and
workers
 The international regulatory situation is
becoming more complex

6-35