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Chapter 6 Trade Protectionism

This document discusses trade protectionism and the rationales governments use to restrict or enhance trade flows. It explains that governments intervene in trade to achieve economic and political goals but must balance conflicting objectives and interests. Protectionist policies aim to fight unemployment, protect infant industries, and promote industrialization. However, such policies can backfire and decrease exports. The major instruments of trade control governments use include tariffs, subsidies, quotas, standards and import/export restrictions. Companies must learn to navigate this complex regulatory environment and may respond by moving operations abroad or influencing trade policy decisions.

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279 views

Chapter 6 Trade Protectionism

This document discusses trade protectionism and the rationales governments use to restrict or enhance trade flows. It explains that governments intervene in trade to achieve economic and political goals but must balance conflicting objectives and interests. Protectionist policies aim to fight unemployment, protect infant industries, and promote industrialization. However, such policies can backfire and decrease exports. The major instruments of trade control governments use include tariffs, subsidies, quotas, standards and import/export restrictions. Companies must learn to navigate this complex regulatory environment and may respond by moving operations abroad or influencing trade policy decisions.

Uploaded by

salsa azzahra
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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BI0013

International Business
Trade Protectionism

ACCOUNTING PROGRAM
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
Introduction
Physical 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
• The non‐involved consumers (jobs/income are
not affected by trade policies) usually don ʼ t
care—They want the lowest price for a product.
Economic Rationales for
Governmental Intervention
Learning 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 Unemployment
Learning 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 ʻInfant Industriesʼ
Learning Objective:
Compare the potential and actual effects of
government intervention on the free flow of
trade
Protecting ʻInfant Industriesʼ
• 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
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

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