Slides for today´s discussion

1. Copyright © 2015 Pearson Education, Inc. 6-1
Economic Rationales for
Government Intervention
p Why governments intervene in trade
n Economic rationales
p Fighting unemployment
p Protecting infant industries
p Promoting industrialization
p Improving comparative position
n Non-economic rationales
p Maintaining essential industries
p Promoting acceptable practices abroad
p Maintaining or extending spheres of influence
p Preserving national culture

2. Copyright © 2015 Pearson Education, Inc. 6-2
Fighting Unemployment
Learning Objective:
Show the effects of pressure groups on
trade policies

3. Copyright © 2015 Pearson Education, Inc. 6-3
Fighting Unemployment
p The unemployed are the most effective pressure
group
p But, import restrictions
n can lead to retaliation by other countries
n are less likely retaliated against effectively by small
economies
n are less likely to be met with retaliation if implemented
by small economies
n may decrease export jobs because of price increases for
components
n may decrease export jobs because of lower incomes
abroad

4. Copyright © 2015 Pearson Education, Inc. 6-4
Protecting ‘Infant
Industries’
Learning Objective:
Compare the potential and actual effects
of government intervention on the free
flow of trade

5. Copyright © 2015 Pearson Education, Inc. 6-5
Protecting ‘Infant
Industries’
p The infant industry argument
n government protection of import competition is
necessary to help certain industries evolve
from high-cost to low-cost production
p Used by developing countries

6. Copyright © 2015 Pearson Education, Inc. 6-6
Developing an Industrial Base
p Countries promote industrialization
because it
n brings faster growth than agriculture
n brings in investment funds
n diversifies the economy
n creates growth in manufactured goods
n reduces imports and promotes exports
n helps the nation-building process

7. Copyright © 2015 Pearson Education, Inc. 6-7
Economic Relationships
With Other Countries
p Trade controls can be used
n to improve the balance of payments
n to gain fair access to foreign markets
p comparable access argument
n as a bargaining tool
p believability and importance
n to control prices
p dumping
p optimum-tariff theory

8. Copyright © 2015 Pearson Education, Inc. 6-8
Noneconomic Rationales for
Government Intervention
p Noneconomic rationales include
n Maintaining essential industries
n Promoting acceptable practices abroad
n Maintaining or extending spheres of influence
n Preserving national culture

9. Copyright © 2015 Pearson Education, Inc. 6-9
Maintaining Essential Industries
p The essential industry argument
n protect essential industries so the country is
not dependent on foreign supplies during war
p Countries must
n determine which industries are essential
n consider costs and alternatives
n consider political consequences

10. Copyright © 2015 Pearson Education, Inc. 6-10
Promoting Acceptable
Practices Abroad
p Import trade controls can be used
n to promote changes in foreign countries’
political policies or capabilities
n as a foreign policy weapon
n to pressure governments to alter their stances
on a variety of issues
p human rights
p environmental protection

11. Copyright © 2015 Pearson Education, Inc. 6-11
Maintaining or Extending
Spheres of Influence
p Governments provide assistance and
encourage imports from countries that join
a political alliance or vote a preferred way
within international bodies
n Cotonou Agreement
p A country’s trade restrictions may coerce
governments to follow certain political
actions or punish companies whose
governments do not

12. Copyright © 2015 Pearson Education, Inc. 6-12
Preserving National Culture
p In order to preserve national culture,
countries
n limit foreign products and services in certain
sectors
p Canada’s cultural sovereignty
n prohibit exports of art and historical items
deemed important to national heritage

13. Copyright © 2015 Pearson Education, Inc. 6-13
Instruments of Trade Control
Learning Objective:
Illustrate the major means by which trade
is restricted and regulated

14. Copyright © 2015 Pearson Education, Inc. 6-14
Instruments of Trade Control
p Two types of trade controls
n those that indirectly affect the amount traded
by directly influencing prices of exports or
imports
n those that directly limit the amount of a good
that can be traded

15. Copyright © 2015 Pearson Education, Inc. 6-15
Tariffs
p Tariffs are also known as duties
n refer to a government levied tax on goods
shipped internationally
p Tariffs may be levied
n on goods entering, leaving, or passing through
a country
n for protection or revenue
n on a per unit basis or a value basis
p export tariffs
p transit tariffs
p import tariffs

16. Copyright © 2015 Pearson Education, Inc. 6-16
Nontariff Barriers:
Direct Price Influencers
p Subsidies
n direct assistance to companies to make them
more competitive
p agricultural subsidies
p overcoming market imperfections
p valuation problems

17. Copyright © 2015 Pearson Education, Inc. 6-17
Nontariff Barriers:
Direct Price Influencers
p Aid and loans
n tied
n untied
p Customs valuation
p Other direct-price influences
n special fees and requirements

18. Copyright © 2015 Pearson Education, Inc. 6-18
Nontariff Barriers:
Quantity Controls
p Quotas
n limit the quantity of a product that can
be imported or exported in a given time
frame
pVoluntary export restraint (VER)
pEmbargoes

19. Copyright © 2015 Pearson Education, Inc. 6-19
Nontariff Barriers:
Quantity Controls
p “Buy local” legislation
p Standards and labels
p Specific permission requirements
n import or export license
p Administrative delays
p Reciprocal requirements
n Countertrade or offsets
p Restrictions on services

20. Copyright © 2015 Pearson Education, Inc. 6-20
Dealing with Governmental
Trade Influencers
Learning Objective:
Demonstrate the business uncertainties
and business opportunities created by
governmental trade policies

21. Copyright © 2015 Pearson Education, Inc. 6-21
Dealing with Governmental
Trade Influencers
p Companies facing import competition can
n Move abroad
n Seek other market niches
n Create greater efficiency or superior products
n Try to get governmental protection

22. Copyright © 2015 Pearson Education, Inc. 6-22
Tactics For Dealing
With Import Competition
p Convince decision makers of the merits of
particular policies
p Involve the industry and stakeholders
p Prepare for changes in the competitive
environment

23. Copyright © 2015 Pearson Education, Inc. 6-23
Dynamics and Complexity
p Trade restriction changes bring about
winners and losers among countries,
companies, and workers
p Gains to consumers from freer trade may
come at the expense of companies and
workers
p The international regulatory situation is
becoming more complex