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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