1. International Business
Government Influence on Trade

2. Objectives
 Evaluate impact of governments trade policy on
international business.
 Lecture
 U.S. Cuban Trade Case Study
 Movie Argentina & Ecuador
 Discussion
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 2
MBA,email:1966patel@gmail.com

3. Protectionism is . . .
 Government restrictions designed to help domestic firms
compete with foreign firms at home and abroad.
 Protectionist policies are likely to lead to retaliation by
affected stakeholders.
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 3
MBA,email:1966patel@gmail.com

4. Diagramming Protectionism
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 4
MBA,email:1966patel@gmail.com

5. Why do
government
enact
protectionist
policies?

6. Justification for Protectionism
 Save our Jobs!
 Give domestic industries the advantage and save jobs.
 Give the Start Up Infant Industries a Chance!
 Temporarily shield emerging industries from global competition.
 Jump Start Industrialization
 Leverage domestic advantage (surplus workers, natural resources) to
finance a manufacturing.
 Gain The Competitive Edge
 Balance of payment, price control objectives
 Comparable access (fairness), leverage as a bargaining tool
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 6
MBA,email:1966patel@gmail.com

7. How Change in Trade Policy Affects
Markets
 Who was the MFA designed to protect in ‘74?
 Who was being protected when it ended in ‘05?
 Who were the winners, and losers?
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 7
MBA,email:1966patel@gmail.com

8. Noneconomic Reasons
 Protect essential industries
 Defense, energy, transportation, food
 Preserve national identity
 Swiss Army Knives
 Maintain or extend spheres of influence
 MFN, block enemy
 Withhold trade to “unfriendly” countries
 Embargo Communist Cuba
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 8
MBA,email:1966patel@gmail.com

9. Case Study:
U.S.-Cuban Trade Relations
1. Should the U.S. seek to tighten its economic
grip on Cuba? If so, why?
Since the rest of the world is trading with Cuba,
the U.S. embargo is powerless. It also looks like a
Cold War relic.
However, the U.S. is being consistent with its
policy on human rights, and who knows it just
might work.

10. Case Study:
U.S.-Cuban Trade Relations
2. Should the U.S. normalize business relations
with Cuba? If so, should the U.S. stipulate any
conditions?
Yes, Cuba is less of military threat than Iran, Libya
and North Korea whom we have much lighter
sanctions against. Plus more normal relations may
lead to greater democracy.
No, Cuba will not necessarily trade with U.S. like the
1950’s. There is no guarantee that trade will bring
about human rights or regain lost property.

11. Case Study:
U.S.-Cuban Trade Relations
3. Assume you are Fidel Castro, or his brother,
what kind of trade relationship with the U.S.
would be in your best interest?
Logically, Castro would want to save face and
improve Cuba’s economy with direct aid from U.S.
government or FDI from U.S. businesses.
Simultaneously, he would want to prevent any
influence that might cause social or political
change.

12. Case Study:
U.S.-Cuban Trade Relations
4. How do the structure and relationships of the
American political system influence the existence
and specification of the trade embargo?
Structurally, Congress and the President listen to
lobbyists and campaign donors who oppose
Castro’s regime. America also has a long standing
adversarial relationship with Communist
countries which makes policy changes unlikely.

13. How is trade restricted
and regulated?

14. Protection with
Tariffs
•Tariffs = tax
•Duties: tariffs on
international traded
products
•Transit: through a
country (Panama)
•Specific: per unit
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 14
MBA,email:1966patel@gmail.com

15. Protection With Non-
Tariffs
Nontariff Barriers influence
prices directly.
Subsidies give money to domestic
markets
Aid & loans require countries to
spend money on donors products
Quotas & Embargos
Standards & labels
Permission & license
Administrative delays
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 15
MBA,email:1966patel@gmail.com

16. What are the direct & indirect affects
of trade restrictions?
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 16
MBA,email:1966patel@gmail.com

17. How can international
businesses deal with trade
restrictions?
Options:
2. Move operations to lower-cost countries
3. Concentrate on market niches that attract less
international competition
4. Adopt internal innovations that lead to greater
efficiency and/or superior products
5. Try to secure government protection
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 17
MBA,email:1966patel@gmail.com

18. Conclusions
 Governments have political as well as
economic reasons for protectionism.
 Protectionist policies create subsidies for
domestic industries, which impedes
competition.
 Trade barriers will likely lead to retaliation.
 Companies int’l business strategy is shaped by
how much they gain/lose from protectionism.
by Dr.Rajesh Patel,Director,NRV
07/04/12 05:56 AM 18
MBA,email:1966patel@gmail.com

19. Discussion Question
As a result of GATT negotiations, both tariff and non-tariff barriers have
been significantly reduced worldwide. However, given the recent shifts
in productive assets and employment from many industrialized
countries to emerging economies such as Indian and China, cries for
protectionist measures can be heard from many quarters.
Do you think industrialized governments will impose
tariffs or non-tariffs again?

20. Homework
Wal-Mart de Mexico
by Dr.Rajesh Patel,Director,NRV
20
07/04/12 05:56 AM MBA,email:1966patel@gmail.com