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International business, 5 th edition chapter 9 formulation of national trade policies.

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Presentation on theme: "International business, 5 th edition chapter 9 formulation of national trade policies."— Presentation transcript:

1 international business, 5 th edition chapter 9 formulation of national trade policies

2 9-2 Chapter Objectives 1 Present the major arguments in favor of and against governmental intervention in international trade Identify the advantages and disadvantages of adopting an industrial policy Analyze the role of domestic politics in formulating a countrys international trade policies

3 9-3 Chapter Objectives 2 Describe the major tools countries use to restrict trade Specify the techniques countries use to promote international trade Explain how countries protect themselves against unfair trade practices

4 9-4 Issues on Trade Intervention Should a national government intervene to protect the countrys domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports? Should a national government directly help the countrys domestic firms increase their foreign sales through export subsidies, government-to- government negotiations, and guaranteed loan programs?

5 9-5 Free Trade or Fair Trade? Free TradeFair Trade

6 9-6 Industry-Level Arguments National Defense Infant Industry Maintenance of Existing Jobs Strategic Trade

7 9-7 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

8 9-8 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?

9 9-9 Maintenance of Existing Jobs Jobs in high-wage countries threatened by imports from low- wage countries Forms of assistance –Tariffs –Quotas

10 9-10 Strategic Trade Theory Strategic trade theory suggests that a national government can make its country better off if it adopts trade policies that improve the competitiveness of its domestic firms in such oligopolistic industries.

11 9-11 National Trade Policies Economic Development Programs Industrial Policy Public Choice Analysis

12 9-12 Economic Development Programs Export Promotion Strategy Import Substitution Strategy

13 9-13 Industrial Policy When industrial policy is pursued, the national government identifies key domestic industries critical to the countrys future economic growth and then formulates programs that promote their competitiveness.

14 9-14 Public Choice Analysis Special interest groups are willing to work harder for the passage of laws favorable to their interests than the general public is willing to work for the defeat of laws unfavorable to its interests.

15 9-15 Map 9.1 An Effect of the Jones Act

16 9-16 Reasons for Tariffs Tariffs raise revenues for national governments Tariffs act as a barrier to trade

17 9-17 Tariff Barriers to International Trade Export tariffs Import tariffs Ad valorem Specific Compound

18 9-18 More than 300 workers lost their jobs when this Detroit auto plant closed.

19 9-19 Figure 9.3 Impact of an Import Tariff on Demand for U.S.–Made Minivans

20 9-20 Nontariff Barriers 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

21 9-21 Figure 9.4 Tariff Rate Quota on Widgets A tariff rate quota imposes high tariff rates on imports above the threshold level.

22 9-22 These Indian sugar cane workers receive less for their crops because of the tariff- rate quota imposed by the U.S.

23 9-23 Forms of Nonquantitative NTBs Product and testing standards Restricted access to distribution networks Public-sector procurement policies Local-purchase requirements Regulatory controls Currency controls Investment controls

24 9-24 Figure 9.5 Types of Barriers to International Trade

25 9-25 Promotion of International Trade Subsidies Foreign Trade Zones Export Financing Programs

26 9-26 Map 9.2 Foreign Trade Zone on Mauritius

27 9-27 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

28 9-28 Controlling Unfair Trade Practices Countervailing Duties Antidumping Regulations

29 9-29 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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