Transcript Business-Government Trade Relations

6
BusinessGovernment
Trade Relations
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Political Motives
Protect
jobs
Preserve
national
security
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Respond to
“unfair”
trade
Gain
influence
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Economic Motives I
Potential results
Protect infant
industries
Protect emerging
industries during
development from
global competition
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+ National income increases
–
–
–
–
Wrong industries protected
Firms grow complacent
Consumer prices rise
Public funds poorly spent
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Economic Motives II
Potential results
Pursue strategic
trade policy
Help companies to
achieve economies of
scale and gain a firstmover advantage
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+ Global industry created
– Firms’ efficiency reduced
– Domestic costs increase
– Special interests benefit
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Cultural Motives
Nations block imports
deemed harmful
Protect national
identity
Usual suspects
are U.S. media and
consumer goods
Result of increased
globalization
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6-5
Trade Promotion and Restriction
Trade promotion
methods
 Subsidies
Trade restriction
methods
 Tariffs
 Quotas
 Export financing
 Embargoes
 Foreign trade zones
 Local content requirements
 Special government agencies
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 Administrative delays
 Currency controls
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Subsidies
Financial assistance in the form of cash, tax
breaks, price supports, etc.
Potential results
+ Increased competitiveness
– Encourage inefficient firms
– Increased consumer prices
– Overuse of resources
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Export Financing
Financing such as low-interest loans and loan guarantees
Export-Import Bank of the United States
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

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Working capital loan guarantees
Credit information on nation or firm abroad
Export credit insurance against loss
Loan guarantees to buyers of U.S. goods
and much more…
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6-8
Foreign Trade Zones
 Designated region in which
merchandise is allowed to
pass through with lower
customs duties (taxes) and/or
fewer customs procedures
 Purpose is to increase
employment and trade
within the nation
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Special Government Agencies
Organize trade missions for
officials and businesses
Operate export-promotion offices
at locations abroad
Help import products the home
nation does not produce
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6 - 10
Tariffs
Government tax levied on a product as it enters or leaves a nation
Potential results
 Export tariff
+ Protect domestic firms
 Transit tariff
+
 Import tariff
– Reduce competitiveness
–
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from competitors
Generate income for the
government
of home-based firms
Raise consumer prices
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Import and Export Quotas
Restriction on the amount of a good that can enter
or leave a country during a certain period of time
Import Quotas
Export Quotas
1. Protect domestic producers
1. Retain adequate domestic
2. Force outside firms to
2. Restrict world supply of a
of a good
compete for market access
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supply of a product
product to raise its price
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Embargoes
Complete ban on trade (imports and exports)
in one or more products with a particular country
Most restrictive
nontariff trade
barrier
Often used to
achieve political
goals
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Can be difficult
for a nation to
enforce
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Local Content Requirements
Laws that domestic market must supply
a specific amount of a product
Forces international companies to
employ local resources in production process
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Administrative Delays
Regulatory controls or
bureaucratic rules to slow
imports into a country

Inconvenient ports for imports

Product-damaging inspections

Understaffed customs offices

Lengthy licensing procedures
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Currency Controls
Restrictions on the
convertibility of a currency
Limit the amount of
globally accepted
currency available to
pay for imports
Set an unfavorable
exchange rate when
paying for imports
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General Agreement on
Tariffs and Trade (GATT)
Early Success:
• Tariffs down 35%
• Trade up 2,000%
Then Problems:
• Nontariff barriers
• Services left out
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Uruguay Negotiations
Improved intellectual property rules
Extended coverage to services
Reduced agriculture barriers
Created World Trade Organization
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World Trade Organization (WTO)
Normal trade relations status
Dumping and antidumping
Dispute settlement body
Doha trade talks
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