Transcript Document
Chapter 9:
Formulation
of National
Trade Policies
International Business, 4th Edition
Griffin & Pustay
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Issues on Trade Intervention
Should a national government intervene to
protect the country’s domestic firms by
taxing foreign goods entering the domestic
market or constructing other barriers against
imports?
Should a national government directly help
the country’s domestic firms increase their
foreign sales through export subsidies,
government-to-government negotiations,
and guaranteed loan programs?
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Free Trade or Fair Trade?
Free trade –minimal influence from
government
Fair trade – active intervention from
government (managed trade)
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Industry-Level Arguments
National Defense Argument
Infant Industry Argument
Maintenance of Existing Jobs
Strategic Trade Theory
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National Defense Argument
Country must be self-sufficient in
critical raw materials, machinery, and
technology or else be vulnerable to
foreign threats
Appeals to general public
Protects steel, electronics, and machine
tools industries, and merchant marines
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Infant Industry Argument
Imposition of tariffs to give U.S. firms
temporary protection from foreign
competition until firms are fully
established
Powerful economic development
strategy
Which industries should be protected?
For how long?
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Maintenance of Existing Jobs
Jobs in high-wage countries threatened
by imports from low-wage countries
Forms of assistance
– Tariffs
– Quotas
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Strategic Trade Theory
National government can make its
country better off if it adopts trade
policies that improve the
competitiveness of its domestic firms
in oligopolistic industries
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National Trade Policies
Economic Development Programs
– Export promotion strategy
– Import substitution strategy
Industrial Policy
– Key domestic industries chosen, protected, and
promoted
Public Choice Analysis
– Consumers versus special interest groups
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Barriers to International Trade
Tariff barriers
– Export tariff
– Transit tariff
– Import tariffs
• Ad valorem
• Specific
• Compound
Non-tariff barriers
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Quotas
Numerical export controls
Product and testing standards
Restricted access to distribution
networks
Public-sector procurement
policies
Regulatory controls
Currency controls
Investment controls
Local-purchase requirements
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Exports of
Canadian
softwood
lumber to the
U.S. have
resulted in a
30-year long
trade dispute
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Figure 9.6 Types of Barriers to
International Trade
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Promotion of International Trade
Subsidies
Foreign Trade Zones (FTZ)
Export Financing Programs
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Controlling Unfair Trade Practices
International Trade Administration (ITA)
– Division of U.S. Department of Commerce
– Determines whether an unfair trade practice has
occurred
– Confirmed cases transferred to U.S.
International Trade Commission (ITC)
Two types of unfair trade practices
– Government subsidies
– Unfair pricing practices
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Controlling Unfair Trade Practices
Countervailing Duties (CVD)
Antidumping Regulations
Super 301
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Objectives of
Unfair Trade Practice Laws
Promote global efficiency by encouraging
production in those countries that can
produce a good most efficiently
Ensure that trade occurs on the basis of
comparative advantage, not the size of
government subsidies
Protect consumers from predatory behavior
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