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2 Government policies and regulations affect trade.

3 To identify different types of governments To discuss the ways in which governments influence international trade

4 Understanding a country’s form of government is an integral part of doing business globally.

5 Governments and International Business Government policies and regulations affect all aspects of importing and exporting. Legal systems regulate trade. You need to be familiar with different types of governments and the legal requirements unique to international trade.

6 Types of Governments The two basic types of national governments are: Democratic Totalitarian Most governments have characteristics that fall somewhere in between these two types.

7 Types of Governments

8 Democratic Governments A democracy usually stresses the rights, freedom, and responsibilities of the individual. democracy a government system in which the nation’s citizens hold political power

9 Democratic Governments Characteristics of Democratic Political Systems Freedom of opinion, expression, and press, and freedom to organize Elections in which voters choose officers of the government Limited terms of elected officials An independent and fair court system that has respect for individual rights A nonpolitical bureaucracy and defense infrastructure Access to the decision-making process available to citizens

10 Democratic Governments Many democracies use an economic system based on supply and demand, which is known as a market economy.

11 Totalitarian Governments With totalitarianism, the government controls all aspects of life, including attitudes, values, and beliefs. totalitarianism a type of government system in which citizens have no influence on the government’s policies and laws

12 Totalitarian Governments Types of totalitarian governments include: Fascism Authoritarianism Communism Totalitarian governments can be theocratic or secular. Theocratic: Religious leaders are the political leaders. Secular: Leaders come from the military or rise up through the country’s single political party.

13 Totalitarian Governments When a nation’s government directs the economy, it is known as a command economy.

14 Totalitarian Governments A theocracy is not always a totalitarian dictatorship and may include a mixture of elected officials and religious influences. theocracy a type of totalitarian government whose leaders claim to be inspired by divine guidance

15 Mixed Systems Most countries fall between democracies and totalitarian governments. The United Kingdom is a constitutional monarchy. China is a totalitarian government that is moving away from a command economy.

16 Political Environments Two main factors guide governmental actions: Isolationism Conservative or Liberal Attitudes

17 Isolationism Isolationism is a foreign policy that combines an avoidance of political and military alliances with a policy of economic nationalism or protectionism. International trade is difficult with an isolationist country.

18 Conservative or Liberal Attitudes A conservative attitude favors limits on government activities and promotes private ownership and business domestically and internationally.

19 Conservative or Liberal Attitudes A liberal position favors more government involvement in business with strong consumer protections.

20 Economic Policies and Practices The political environment of a country affects: importing exporting international trade These are affected by a country’s policies on taxes, trade barriers, and free trade.

21 International Taxes Tax policies influence how people and businesses invest money. If a company’s leaders find places where business tax rates are lower, they tend to locate their business in those places. Companies take advantage of “enterprise zones.”

22 International Taxes Types of International Taxes Income Tax Sales Tax Excise Tax Payroll Tax Value-Added Tax (VAT)

23 An annual tax on an individual’s or corporation’s net profit A tax on the sale of a product A tax on specific goods and services A tax that employers withhold from employee’s paychecks A sales tax paid on the increased value of a good International Taxes Income Tax Sales Tax Excise Tax Payroll Tax Value-Added Tax (VAT)

24 Trade Barriers Reasons for trade barriers include: Isolationist countries may wish to prevent outside influences. Embargoes or boycotts may be used to make political statements.

25 Free Trade Benefits of free trade include: Improved economic well-being Availability of previously unavailable goods Strengthening political alliances

26 Free Trade A governments may enter into a free trade agreement to encourage international business. free trade agreement a treaty between countries in which the countries agree to not charge taxes, duties, or tariffs on goods they trade NAFTA is an example of a free trade agreement.

27 Free Trade A country may offer to reduce the burden of double taxation for a company in exchange for gaining the benefit of economic growth that the company can provide.

28 Political Risk Political Risks to International Businesses Trade Sanctions Expropriation Economic Nationalism Political Turbulence War

29 Political Risk The use of a tariff, boycott, or embargo to make a political statement The act of taking control and ownership of a foreign- owned company or operation The practice of discouraging the importing of goods in order to protect a domestic product The generic name for types of disruption such as protests, strikes, and other social disorder A devastating blow to the local economy and to international business Trade Sanctions Expropriation Economic Nationalism Political Turbulence War