Transcript BusinessGovernment Trade Relations Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

6
BusinessGovernment
Trade Relations
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
Chapter Objectives
• Describe the political, economic, and cultural
motives behind governmental intervention in trade
• List and explain the methods governments use to
promote international trade
• List and explain the methods governments use to
restrict international trade
• Discuss the importance of the World Trade
Organization in promoting free trade
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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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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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Who gets subsidies?
- Agriculture
- Energy
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Export Financing
Financing such as low-interest loans and loan guarantees
Export-Import Bank of the United States




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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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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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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Schedule of tariffs
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Harley-Davidson
1983 International Trade Commission put a
49.4% duty on Japanese heavy motorcycles
at request when Harley could not compete
Allowed Harley to enact new management
strategies without pressure from imports
Within 4 years Harley was back on feet and
had highest market share
1987 policy lifted one year early
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
supply of a product
product to raise its price
Examples
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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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Porta-bote International
$895 motorized or sailing craft that folds to 4
inches flat and can be carried on top of a car
Japanese safety test
- Japanese Coast Guard filled one boat with 600
pounds of concrete and dropped it 20 feet into
the water
- Boat examined for structural damage
- Done twice more
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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How do I know what barriers exist
in a country?
Country Commercial Guides (Ch 5)
US Department of Commerce –
International Trade Administration
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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Printed in the United States of America.
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publishing as Prentice Hall
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Answer to Discussion Question
Political motives include to
protect domestic jobs, to preserve
national security, to respond to
“unfair” trade by another nation,
and to gain influence over other
nations. Economic motives
include to protect infant industries
from competition and to pursue
strategic trade policy. And Cultural
motives include to protect
national identity, to block imports
thought culturally harmful, and to
protect budding artists.
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