copyright 2015 pearson education, inc.6-1 international business environments operations 15e...

Copyright © 2015 Pearson Education, Inc. 6-1

International Business

Environments & Operations

15e

Daniels ● Radebaugh ● Sullivan


Chapter 6Governmental

Influence on Trade


Learning Objectives Explain why governments try to enhance and

restrict trade Show the effects of pressure groups on trade

policies Compare the potential and actual effects of

government intervention on the free flow of trade Illustrate the major means by which trade is

restricted and regulated

Learning Objectives Demonstrate the business uncertainties

and opportunities created by governmental trade policies

Discern how businesses may respond to import competition

Fathom how the growing complexity of products and trade regulations may affect the future



Introduction Protectionism - policies that

affect the ability of foreign producers to compete in your home market

limit or enhance your company’s ability to sell abroad or acquire needed foreign supplies


IntroductionPhysical and Social Factors Affecting the Flow of Goods and Services


Conflicting Results of Trade Policies

Governments intervene in trade to achieve economic, social, and political goals

Policymakers are challenged by conflicting objectives interest groups


The Role of Stakeholders Proposed policies on trade spark debate Stakeholders include

Workers Owners Suppliers Local politicians

Consumers usually don’t care


Economic Rationales for Governmental InterventionLearning Objective: Explain why governments try to enhance and restrict trade


Economic Rationales for Government Intervention

Why governments intervene in trade Economic rationales

Fighting unemployment Protecting infant industries Promoting industrialization Improving comparative position

Non-economic rationales Maintaining essential industries Promoting acceptable practices abroad Maintaining or extending spheres of influence Preserving national culture


Fighting UnemploymentLearning Objective: Show the effects of pressure groups on trade policies


Fighting Unemployment The unemployed are the most effective pressure

group But, import restrictions

can lead to retaliation by other countries are less likely retaliated against effectively by small

economies are less likely to be met with retaliation if implemented

by small economies may decrease export jobs because of price increases for

components may decrease export jobs because of lower incomes

abroad


Protecting ‘Infant Industries’

Learning Objective: Compare the potential and actual effects of government intervention on the free flow of trade


Protecting ‘Infant Industries’

The infant industry argument government protection of import competition is

necessary to help certain industries evolve from high-cost to low-cost production

Used by developing countries


Developing an Industrial Base

Countries promote industrialization because it brings faster growth than agriculture brings in investment funds diversifies the economy creates growth in manufactured goods reduces imports and promotes exports helps the nation-building process


Economic Relationships With Other Countries

Trade controls can be used to improve the balance of payments to gain fair access to foreign markets

comparable access argument as a bargaining tool

believability and importance to control prices

dumping optimum-tariff theory


Noneconomic Rationales for Government Intervention

Noneconomic rationales include Maintaining essential industries Promoting acceptable practices abroad Maintaining or extending spheres of influence Preserving national culture


Maintaining Essential Industries

The essential industry argument protect essential industries so the country is

not dependent on foreign supplies during war Countries must

determine which industries are essential consider costs and alternatives consider political consequences


Promoting Acceptable Practices Abroad

Import trade controls can be used to promote changes in foreign countries’

political policies or capabilities as a foreign policy weapon to pressure governments to alter their stances

on a variety of issues human rights environmental protection


Maintaining or Extending Spheres of Influence

Governments provide assistance and encourage imports from countries that join a political alliance or vote a preferred way within international bodies Cotonou Agreement

A country’s trade restrictions may coerce governments to follow certain political actions or punish companies whose governments do not


Preserving National Culture

In order to preserve national culture, countries limit foreign products and services in certain

sectors Canada’s cultural sovereignty

prohibit exports of art and historical items deemed important to national heritage


Instruments of Trade Control

Learning Objective: Illustrate the major means by which trade is restricted and regulated


Instruments of Trade Control

Two types of trade controls those that indirectly affect the amount traded

by directly influencing prices of exports or imports

those that directly limit the amount of a good that can be traded


Tariffs Tariffs are also known as duties

refer to a government levied tax on goods shipped internationally

Tariffs may be levied on goods entering, leaving, or passing through

a country for protection or revenue on a per unit basis or a value basis

export tariffs transit tariffs import tariffs


Nontariff Barriers: Direct Price Influencers

Subsidies direct assistance to companies to make them

more competitive agricultural subsidies overcoming market imperfections valuation problems


Nontariff Barriers: Direct Price Influencers

Aid and loans tied untied

Customs valuation Other direct-price influences

special fees and requirements


Nontariff Barriers: Quantity Controls

Quotas limit the quantity of a product that can

be imported or exported in a given time frame

Voluntary export restraint (VER)Embargoes


Nontariff Barriers: Quantity Controls

“Buy local” legislation Standards and labels Specific permission requirements

import or export license Administrative delays Reciprocal requirements

Countertrade or offsets Restrictions on services


Dealing with Governmental Trade Influencers

Learning Objective:Demonstrate the business uncertainties and business opportunities created by governmental trade policies


Dealing with Governmental Trade Influencers

Companies facing import competition can Move abroad Seek other market niches Create greater efficiency or superior products Try to get governmental protection


Tactics For Dealing With Import Competition

Convince decision makers of the merits of particular policies

Involve the industry and stakeholders Prepare for changes in the competitive

environment


Dynamics and Complexity Trade restriction changes bring about

winners and losers among countries, companies, and workers

Gains to consumers from freer trade may come at the expense of companies and workers

The international regulatory situation is becoming more complex


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

copyright 2015 pearson education, inc.6-1 international business environments operations 15e...

Documents