1. International Business Environments & Operations
Daniels ● Radebaugh ● Sullivan
International Business Environments and Operations 15e by Daniels, Radebaugh, and Sullivan
Copyright © 2015 Pearson Education, Inc.

2. Governmental Influence on Trade
Chapter 6
Governmental Influence on Trade
Chapter 6: Governmental Influence on Trade
Copyright © 2015 Pearson Education, Inc.

3. Copyright © 2015 Pearson Education, Inc.
Learning Objectives
Explain why governments try to enhance and restrict trade
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
Demonstrate the business uncertainties and opportunities created by governmental trade policies
Discern how businesses may respond to import competition
The Learning Objectives for this chapter are
To explain the rationales for governmental policies that enhance and restrict trade
To show the effects of pressure groups on trade policies
To describe the potential and actual effects of governmental intervention on the free flow of trade
To illustrate the major means by which trade is restricted and regulated
To demonstrate the business uncertainties and business opportunities created by governmental trade policies
Copyright © 2015 Pearson Education, Inc.

4. Copyright © 2015 Pearson Education, Inc.
Introduction
Protectionism refers to those government restrictions and incentives designed to help a county’s domestic firms compete with foreign competitors at home and abroad.
Protectionist policies……
negatively affect the ability of foreign producers to compete in your home market
enhance your company’s ability to sell abroad or acquire needed foreign supplies
are likely to lead to retaliation by affected stakeholders
While free trade is beneficial, in reality all countries regulate the flow of goods and services across their borders. Governments want to help companies that are struggling, but it’s difficult to do so without hurting those that are doing well.
Copyright © 2015 Pearson Education, Inc.

5. Conflicting Results of Trade Policies
Governments intervene in trade to achieve economic, social, and political goals
Policymakers are challenged by
conflicting objectives
interest groups
Stakeholders include workers, owners, suppliers, local politicians etc.
Consumers usually don’t care… or, have very little say in the market
Government officials use trade policy to try to achieve economic, social, and political goals. However, their efforts are hampered by uncertain and conflicting policy outcomes, as well as the goals of special interest groups.
Copyright © 2015 Pearson Education, Inc.

6. 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
This Table shows the reasons for government intervention in trade. Notice that there are both economic and noneconomic reasons for intervention.
Copyright © 2015 Pearson Education, Inc.

7. 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 tariff is 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.
Trade barriers have often been the sources of conflict among nations and in WTO negotiations

8. 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
Standards and Labels
Specific permission requirements (license etc.)
Administrative delays

9. Effect of Nontariff Barriers
Effect on
Subsidies
Aids and Loans
Quotas
Buy Local
Price
Production
Market
Motivation
Trade

10. 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

11. 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
Looking forward, there is likely to be both support for freer trade, and also support for more protectionism.
Copyright © 2015 Pearson Education, Inc.

12. Chapter 6: Discussion Questions
What is protectionism? What are the arguments for and against protectionism? I may ask you to explain any specific rationale (e.g., infant industry argument)
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.

13. Copyright © 2015 Pearson Education, Inc.
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.