Trade barriers in International Business
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This document discusses governmental trade barriers and reasons for their use. It outlines both economic and non-economic reasons for governments to intervene in trade, such as protecting infant industries, maintaining employment, and preserving national identity. Common trade barriers include tariffs, quotas, subsidies, and embargoes. Tariffs directly affect prices through import or export taxes, while non-tariff barriers can influence prices or quantities through measures like import quotas or subsidies. In general, governments employ various trade restrictions and supports to influence their country's trade relationships and performance for both economic and strategic policy reasons.
Trade barriers in International Business
- 1. Trade Barriers: Governmental Influence on Trade Presented By: Jatin Vaid [email protected] 1International Business - Jatin Vaid
- 2. Protectionism • Company’s performance, ability to compete and survival depends on government’s trade policies. • Policies may limit or enhance the ability to sell abroad. • Restrictions (Tariffs, etc.) or Competitive support (subsidies, etc.) 2International Business - Jatin Vaid
- 3. Reasons for governmental intervention • Preventing Unemployment • Protecting Infant Industries • Promoting Industrialization • Improving Comparative Position Economic Reasons • Maintaining Essential industries • Dealing with unfriendly countries • Maintaining Control • Preserving National Identity Non – Economic Reasons 3International Business - Jatin Vaid
- 4. 1. ECONOMIC REASONS Reasons for Government’s Intervention International Business - Jatin Vaid 4
- 5. 1.1 Preventing Unemployment • Economic employment of full employment • Gaining jobs by limiting imports • Other countries may retaliate • Impact on other industries International Business - Jatin Vaid 5
- 6. 1.2 Protecting Infant Industries • Government should shield an emerging industry from foreign competition by guaranteeing it a large share of domestic market until it is ready to compete. • Efficiency gains take time • Economies of scale & experience curve translate into higher productivity • Benefits include higher employment, lower social costs and higher tax revenues 6International Business - Jatin Vaid
- 7. 1.3 Promoting Industrialization • Higher manufacturing base leads to higher per capita income • Restricting imports leads to developing an industrial base • Increase FDI • Export – led development for local consumption • Nation building: Build infrastructure, rural development, skill building 7International Business - Jatin Vaid
- 8. 1.4 Improving Comparative Position • Nation’s absolute economic welfare compared with other nations • Balance of trade adjustments • Gaining access to foreign markets • Restrictions as bargaining tool • Controlling prices 8International Business - Jatin Vaid
- 9. 2. NON – ECONOMIC REASONS Reasons for Government’s Intervention International Business - Jatin Vaid 9
- 10. 2. Non – Economic Reasons 2.1 Maintaining essential industries: • Protect essential domestic industries • Financial inclusion of necessities • Rural penetration at affordable prices • Maintaining competitive advantages in essential industries. • Water, electricity, banking, railways, etc. 10International Business - Jatin Vaid
- 11. 2.2 Dealing with unfriendly countries • National defense • Trade of strategic goods – data encryption technology, arms & ammunitions, banking, etc. • Used as a method to achieve political objectives 11International Business - Jatin Vaid
- 12. 2.3 Maintaining Control • Governments give aid to and encourage imports from countries that join a political alliance or vote in a preferred way within international bodies. • Political motives 12International Business - Jatin Vaid
- 13. 2.4 Preserving national identity • Unifying sense of identity to be sustained • National culture to be protected • Defining boundaries for trade 13International Business - Jatin Vaid
- 14. Instruments of Trade Control • Import tariffs • Export Tariffs • Transit Tariffs Tariff Barriers • Subsidies • Tied Aids • Minimum Sale Price • Quotas • Embargoes • Buy – Local Legislation • Specific Permissions Required Non – Tariff Barriers 14International Business - Jatin Vaid
- 15. Tariff Barriers • Directly affect the prices of goods traded • Also called Duty or tax levied on goods traded internationally. • Most common type of trade control • Specific duty; Ad – Valorem duty; Compound duty. 15International Business - Jatin Vaid
- 16. Types of tariffs i. Import tariffs: Collected by importing country ii. Export tariffs: Collected by exporting country iii. Transit tariffs: Collected by the country through which the goods have passed. 16International Business - Jatin Vaid
- 17. Non Tariff Barriers • May directly affect either price or quantity of goods traded internationally. 17International Business - Jatin Vaid
- 18. Types of Non – Tariff Barriers i. Subsidies: Direct assistance to companies, making them more competitive. ii. Tied Aids: Loans to other countries, a part of which is spend in donor country. E.g. Infrastructure, telecommunication. iii. Minimum sale price: Goods sold at a price set by authorities after clearances. 18International Business - Jatin Vaid
- 19. . iv. Quotas: Limiting the quantity of goods imported or exported at a given time frame. v. Embargoes: Prohibits all forms of trade from a country or a category of goods. vi. Buy – Local: Favoring domestic producers or goods of local origin. vii. Specific Permissions: import or export license. 19International Business - Jatin Vaid
- 20. THANK YOU! [email protected] International Business - Jatin Vaid 20