bus 350 chap 6 - week 3 tuesday

7/27/2019 BUS 350 Chap 6 - Week 3 Tuesday

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Global Business Today

byCharlesW.L.Hill

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.


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GreatProjectReportExample

Exampleof

Experiential

Learning

class

project

report

onYouTube:

http://www.youtube.com/watch?v=tknI9OEv8aU

9/3/2013 Paul McAfee Keuka College


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MarketingTeamPRAssignment

Foryourclassproject:

Talkto

Ms.

Lan

to

find

out

how

you

can

get

publicity

inVietnamfortheworkyourclassisdoingforthe

pediatrichospital.

Developasimple

Public

Relations

(PR)

plan

and

includeitinyourMidTermandFinalPresentations.

FollowyourPRplanandgetasmuchpublicityas

possiblein

English

language

(e.g.,

Viet

Nam

News)

andVietnameselanguagenewspapersand

websites.



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Chapter 6

ThePoliticalEconomyof

InternationalTrade


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1-5

Introduction

Freetradereferstoasituationwhereagovernment

doesnotattempttorestrictwhatitscitizenscanbuy

fromanother

country

or

what

they

can

sell

to

anothercountry

Whilemany

nations

are

nominally

committed

to

freetrade,theytendtointerveneininternational

tradetoprotecttheinterestsofpolitically

importantgroups


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InstrumentsofTradePolicy

Question: Howdogovernmentsinterveneininternational

trade?

Therearesevenmaininstrumentsoftradepolicy

1. Tariffs

2. Subsidies3. Importquotas

4. Voluntaryexportrestraints

5. Localcontentrequirements

6. Antidumpingpolicies

7. Administrativepolicies


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Tariffs

Atariffisataxleviedonimportsthateffectively

raisesthecostofimportedproductsrelativeto

domesticproducts

Specifictariffsareleviedasafixedchargefor

eachunit

of

agood

imported

Advaloremtariffsareleviedasaproportionof

thevalueoftheimportedgood


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Tariffs

Question: Whydogovernmentsimposetariffs?

Tariffs

increasegovernmentrevenues

provideprotectiontodomesticproducersagainst

foreigncompetitors

by

increasing

the

cost

of

importedforeigngoods

forceconsumerstopaymoreforcertainimports

So,tariffs

are

unambiguously

pro

producer and

anti

consumer,andtariffsreducetheoverallefficiencyof

theworldeconomy


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Subsidies

Asubsidyisagovernmentpaymenttoadomestic

producer

Subsidieshelpdomesticproducers

competeagainstlowcostforeignimports

gainexport

markets

Consumers

typically

absorb

the

costs

of

subsidies


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ImportQuotasand

VoluntaryExport

Restraints

Animportquotaisadirectrestrictiononthequantityofsome

goodthatmaybeimportedintoacountry

Tariffratequotasareahybridofaquotaandatariffwherea

lowertariffisappliedtoimportswithinthequotathantothose

overthequota

Voluntaryexportrestraintsarequotasontradeimposedbythe

exportingcountry,typicallyattherequestoftheimporting

countrysgovernment

Aquotarentis theextraprofitthatproducersmakewhensupply

isartificiallylimitedbyanimportquota


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ImportQuotasand

VoluntaryExport

Restraints

Question: Whobenefitsfromimportquotasand

voluntaryexportrestraints?

Importquotasandvoluntaryexportrestraints

benefitdomesticproducersbylimitingimport

competition,buttheyraisethepricesofimported

goodsforconsumers


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LocalContentRequirements

Alocalcontentrequirementdemandsthatsome

specificfractionofagoodbeproduceddomestically

Therequirement

can

be

in

physical

terms

or

in

valueterms

Localcontent

requirements

benefit

domestic

producersandjobs,butconsumersfacehigher

prices


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AdministrativePolicies

Administrativetradepolices arebureaucraticrules

thataredesignedtomakeitdifficultforimportsto

enteracountry

Thesepoliceshurtconsumersbydenyingaccessto

possiblysuperior

foreign

products


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Dumping issellinggoodsinaforeignmarketbelowtheircostof

production,orsellinggoodsinaforeignmarketatbelowtheir

fairmarketvalue

Itcanbeawayforfirmstounloadexcessproductioninforeign

markets

Somedumping

may

be

predatory

behavior,

with

producers

using

substantialprofitsfromtheirhomemarketstosubsidizepricesin

aforeignmarketwithaviewtodrivingindigenouscompetitors

outofthatmarket,andlaterraisingpricesandearningsubstantial

profits


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Antidumpingpolicesaredesignedtopunishforeign

firmsthatengageindumping

Thegoalistoprotectdomesticproducersfrom

unfairforeigncompetition

U.S.firms

that

believe

aforeign

firm

is

dumping

can

fileacomplaintwiththegovernment

Ifthecomplainthasmerit,antidumpingduties,also

knownas

countervailing

duties

may

be

imposed


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TheCasefor

GovernmentIntervention

Question: Whydogovernmentsinterveneintrade?

Therearetwotypesofarguments

1. Politicalargumentsareconcernedwithprotecting

theinterestsofcertaingroupswithinanation

(normallyproducers),oftenattheexpenseof

othergroups(normallyconsumers)

2. Economicarguments

are

typically

concerned

with

boostingtheoverallwealthofanation(tothe

benefitofall,bothproducersandconsumers)


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Political ArgumentsforIntervention

Politicalargumentsforgovernmentinterventioninclude

1. protectingjobs

2. protectingindustriesdeemedimportantfornational

security

3. retaliatingtounfairforeigncompetition

4. protectingconsumersfromdangerousproducts

5. furtheringthegoalsofforeignpolicy

6. protectingthehumanrightsofindividualsinexporting

countries


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PoliticalArgumentsforIntervention

1.Protectingjobsandindustries

Thisis

the

most

common

political

reason

for

traderestrictions

Thisis

typically

the

result

of

political

pressures

by

unionsorindustriesthatare"threatened"bymoreefficientforeignproducers,andhavemorepoliticalcloutthantheconsumerswhowill

eventuallypay

the

costs


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2. NationalSecurity

Governmentssometimes

protect

certain

industriessuchasaerospaceoradvanced

electronicsbecausetheyareimportantfor

nationalsecurity

Thisargumentislesscommontodaythaninthe

past


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3.Retaliation

Whengovernmentstake,orthreatentotake,specific

actions,othercountriesmayremovetradebarriers

Thiscan

be

arisky

strategy

Ifthreatenedgovernmentsdontbackdown,tensions

canescalateandnewtradebarriersmaybeenacted


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4.ProtectingConsumers

Protecting

consumers

from

unsafe

products

is

also

be

anargumentforrestrictingimports

Thisofteninvolveslimitingorbanningtheimportof

certainproducts


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5.FurtheringForeignPolicyObjectives

Tradepolicycanbeusedtosupportforeignpolicyobjectives

Preferentialtradetermscanbegrantedtocountriesthat

agovernmentwantstobuildstrongrelationswith

Roguestatesthatdonotabidebyinternationallawsor

normscan

be

punished

However,itmightcauseothercountriestoundermine

unilateraltradesanctions

Twoacts,

the

Helms

Burton

Act

and

the

DAmato

Act,

have

beenpassedtoprotectAmericancompaniesfromsuch

actions


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6.ProtectingHumanRights

Governmentscan

use

trade

policy

to

improve

the

human

rightspoliciesoftradingpartners

Unlessalargenumberofcountrieschoosetotakesuch

action,however,itisunlikelytoprovesuccessful

Somecriticshavearguedthatthebestwaytochangethe

internalhumanrightsofacountryistoengageitin

internationaltrade

ThedecisiontograntChinaMFNstatusin1999wasbased

onthisphilosophy


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Economic ArgumentsforIntervention

Economicargumentsforgovernmentinterventionin

internationaltradeinclude

1. Theinfantindustryargument

2. Strategictradepolicy


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1.Theinfantindustryargument

Theinfantindustryargumentsuggeststhatanindustryshould

beprotecteduntilitcandevelopandbeviableand

competitiveinternationally

Thishasbeenacceptedasajustificationfortemporary

traderestrictions

under

the

WTO

However,thisargumenthasbeencriticizedbecause

itis

useless

unless

it

makes

the

industry

more

efficient

ifacountryhasthepotentialtodevelopaviable

competitiveposition,itsfirmsshouldbecapableofraising

necessaryfunds



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2.StrategicTradePolicy

Strategictradepolicysuggeststhatincaseswhere

theremaybeimportantfirstmoveradvantages,

governmentscan

help

firms

from

their

countries

attaintheseadvantages

Strategictradepolicyalsosuggeststhat

governmentscan

help

firms

overcome

barriers

to

entryintoindustrieswhereforeignfirmshavean

initialadvantage



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TheRevisedCaseforFreeTrade

Newtradetheoristsbelievegovernmentinterventionin

internationaltradeisjustified

Classictradetheoristsdisagree

Somenewtradetheoristsbelievethatwhilestrategictrade

theory

is

appealing

in

theory,

it

may

not

be

workable

in

practice theysuggestarevisedcaseforfreetrade

Twosituationswhererestrictionsontrademaybe

inappropriate

Retaliation

DomesticPolicies


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RetaliationandTradeWar

Krugmanarguesthatstrategictradepoliciesaimedat

establishingdomesticfirmsinadominantpositionin

aglobal

industry

are

beggar

thy

neighborpolicies

thatboostnationalincomeattheexpenseofother

countries

Acountrythatattemptstousesuchpolicieswill

probablyprovokeretaliation

Atrade

war

could

leave

both

countries

worse

off


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DomesticPolicies

Governmentscanbeinfluencedbyspecialinterest

Consequently,agovernments

decision

to

intervene

inamarketmayappeaseacertaingroup,butnot

necessarilythesupporttheinterestsofthecountry

asawhole


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DevelopmentoftheWorldTradingSystem

SinceWorldWarII,aninternationaltrading

frameworkhasevolvedtogovernworldtrade

Initsfirstfiftyyears,theframeworkwasknownas

theGeneralAgreementonTariffsandTrade(GATT)

Since1995,theframeworkhasbeenknownasthe

WorldTradeOrganization(WTO)


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FromSmithtotheGreatDepression

UpuntiltheGreatDepressionofthe1930s,most

countrieshadsomedegreeofprotectionism

In1930,theU.S.enactedtheSmootHawleyAct,

whichcreatedsignificantimporttariffsonforeign

goods

Othernationstooksimilarstepsandasthe

depressiondeepened,

world

trade

fell

further


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19471979:GATT,TradeLiberalization,andEconomicGrowth

AfterWWII,theU.S.andothernationsrealizedthevalueof

freertrade,andestablishedtheGeneralAgreementonTariffs

andTradein1947

TheapproachofGATT (amultilateralagreementtoliberalize

trade)wastograduallyeliminatebarrierstotrade

GATTsmembershipgrewfrom19tomorethan120nations

Tariffreductionwasspreadovereightroundsofnegotiation

GATTregulations

were

enforce

by

amutual

monitoring

system


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19801993:ProtectionistTrends

Theworldtradingsystemcameunderstrainduringthe1980s

andearly1990sbecause

Japanseconomicsuccessstrainedwhathadbeenmore

equaltradingpatterns

PersistenttradedeficitsbytheU.Scausedsignificant

problemsin

some

industries

and

political

problems

for

the

government

ManycountriesfoundthatalthoughGATTlimitedtheuseof

tariffs,

there

were

many

other

forms

of

intervention

that

hadthesameeffectthatdidnottechnicallyviolateGATT


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TheUruguayRoundandtheWorldTradeOrganization

TheUruguayRound(1986)focusedon

1.

Services

and

Intellectual

Property Tradeissuesrelatedtoservicesandintellectualpropertyand

agriculturewereemphasized

2.TheWorldTradeOrganization

TheWTOwasestablishedasamoreeffectivepolicemanofthe

globaltraderules

TheWTO

encompassed

GATT

and

the

General

Agreement

on

TradeinServices(GATS)andtheAgreementonTradeRelated

AspectsofIntellectualPropertyRights(TRIPS)


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WTOExperiencetoDate

Sinceitsestablishment,theWTO hasemergedasaneffective

advocateandfacilitatoroffuturetradedeals,particularlyin

suchareasasservices

Sofar,mostcountrieshaveadoptedWTOrecommendations

fortradedisputes

TheWTO

has

brokered

negotiations

to

reform

the

global

telecommunicationsandfinancialservicesindustries

The1999meetingoftheWTOinSeattledemonstratedthat

issues

surrounding

free

trade

have

become

mainstream,

and

dependentonpopularopinion


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TheFutureoftheWTO:UnresolvedIssuesandtheDohaRound

TheWTOiscurrentlyfocusingon

1.Antidumpingpolicies

TheWTO

is

encouraging

members

to

strengthen

the

regulations

governingtheimpositionofantidumpingduties

2.Protectionisminagriculture

TheWTO

is

concerned

with

the

high

level

of

tariffs

and

subsidies

intheagriculturalsectorofmanyeconomies

3.Protectingintellectualproperty

Members

believe

that

the

protection

of

intellectual

property

rights

isessentialtotheinternationaltradingsystem

TRIPSobligesWTOmemberstograntandenforcepatentslasting

atleast20yearsandcopyrightslasting50years

h f h


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TheFutureoftheWTO:UnresolvedIssuesandtheDohaRound

4.Marketaccessfornonagriculturalgoodsandservices

TheWTOwouldliketobringdowntariffrateson

nonagriculturalgoodsandservices,andreducethescopefor

theselective

use

of

high

tariff

rates

5.Anewroundoftalks:Doha

TheWTO

launched

anew

round

of

talks

in

2001

to

focus

on

cuttingtariffsonindustrialgoodsandservices

phasingoutsubsidiestoagriculturalproducers

reducingbarriers

to

cross

border

investment

limitingtheuseofantidumpinglaws


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ImplicationsforManagers

Question: Whyshouldinternationalmanagerscare

aboutthepoliticaleconomyoffreetradeorabout

the

relative

merits

of

arguments

for

free

trade

and

protectionism?

Tradebarriers

impact

firm

strategy

Firmscanplayaroleinpromotingfreetradeor

tradebarriers


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TradeBarriersandFirmStrategy

Tradetheorysuggestswhydispersingproductionactivities

globallycanbebeneficial

However,tradebarriersmaylimitafirmsabilitytodoso

Tradebarriersraisethecostofexporting

Quotaslimitexports

Firmsmayhavetolocateproductionactivitieswithinacountrytomeetlocalcontentregulations

Thethreatoffuturetradebarrierscaninfluencefirm

strategy Allofthesecanraisecostsabovewhattheymayhavebeen

inaworldoffreetrade


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PolicyImplications

Internationalfirmshaveanincentivetolobbyforfree

trade,andkeepprotectionistpressuresfromcausing

them

to

have

to

change

strategies

Whiletheremaybeshortrunbenefitstohaving

governmentprotection

in

some

situations,

in

the

longrunthesecanbackfireandothergovernments

canretaliatemakingitmoredifficulttoconstructa

globally

dispersed

production

system


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OnYourHomework

YourName

YourKeukaIDNumber

YourClass

Number

TheNameoftheassignment(E.g.,Homework#2)

TheNameofyourHomeworkGroup(E.g.,Group1)

TheQuestion

you

are

answering


A i t


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Assignment

ReadChapter

7&

Work

on

Project.

Homework#2(100points):Answerone oftheseshortessay

questionsandsubmityourprinted answeratthestartofclasson

Thursday.

60100words

Question1:Whatisalocalcontentrequirement? Howarelocalcontent

requirementstypicallyexpressed?

Question2:

Who

gains

and

who

losses

from

the

imposition

of

atariff

on

animportedgoods?Howcanitbedeterminedwhetherthenetgainfrom

thetariffexceedsthenetloss?

Question3:Whatisasubsidy? Providesomeexamplesoftheformsthat

subsidiestake.

How

do

subsidies

help

domestic

producers?

Question4:Whatisavoluntaryexportrestraint? Cancountriesuse

voluntaryexportrestraintstoavoidtraderetaliation? Explainyour

answer.

bus 350 chap 6 - week 3 tuesday

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