International Business Chapter Seven Governmental Influence on Trade
Conflicting Results of Trade Policies Why governments intervene? - Governments intervene trade for the good of the citizens (or, does it really?) - Arguments for and against trade policies Protectionism refers to those government restrictions and incentives specifically designed to help a county’s domestic firms compete with foreign competitors at home and abroad. Protectionist measures are likely to lead to retaliation by affected stakeholders.
Instruments of Trade Control • Tariffs (also called duties) are taxes levied on (internationally) traded products. • Exports tariffs,transit tariffs, import tariffs, levied by the country of destination on imported products • A specific duty is a tariff that is assessed on a per unit basis. An ad valorem tariffis assessed as a percentage of the value of an item. • Nontariff barriers (NTBs) represent administrative regulations, policies, and procedures, i.e., quantitative and qualitative barriers, that directly or indirectly impede international trade.
Instruments of Trade Control: Nontariff barriers (NTB) • Nontariff barriers (NTB): Direct Price Influences • Subsidies • Aids and Loans • Customs valuation • Nontariff barriers (NTB): Quantity Controls • Quotas: VER, Embargoes • “Buy Local” legislation
What measures firms can take to deal with governmental intervention • Move operations to lower-cost countries • Concentrate on market niches that attract less international competition • Opt for internal innovations leading to greater efficiency and/or superior products • Try to secure government protection
Chapter 7: Discussion Questions • Do trade governmental trade policies benefit the citizens? Explain the rationale for (or against) governmental intervention in trade. OR • What is protectionism? What are the arguments for and against protectionism? • How governments intervene trade with the help of non-tariff barriers? Explain. • What are the effects of subsidies (or quotas) on price, production, market, motivation and trade? Explain. • What measures firms can take to deal with governmental intervention? Explain.