Government influence on trade

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  • The comparable access argument, i.e., “fairness,” promotes the idea that a country’s firms are entitled to the same access to foreign markets as foreign firms have to its market. Dumping refers to the practice of pricing exports below cost, or below their home-country prices, i.e., below their “fair market value.” The optimum-tariff theory claims that a foreign producer will lower its prices if the destination country places a tariff on its products. So long as the price is reduced by any amount, some shift in revenue goes to the importing country, and the tariff is deemed an optimum one.
  • Government influence on trade

    1. 1. International Business Government Influence on Trade
    2. 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. 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. 4. Diagramming Protectionism by Dr.Rajesh Patel,Director,NRV07/04/12 05:56 AM 4 MBA,email:1966patel@gmail.com
    5. 5. Why dogovernmentenactprotectionistpolicies?
    6. 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. 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. 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. 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 aCold War relic.However, the U.S. is being consistent with itspolicy on human rights, and who knows it justmight work.
    10. 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, Libyaand North Korea whom we have much lightersanctions against. Plus more normal relations maylead to greater democracy.No, Cuba will not necessarily trade with U.S. like the1950’s. There is no guarantee that trade will bringabout human rights or regain lost property.
    11. 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 andimprove Cuba’s economy with direct aid from U.S.government or FDI from U.S. businesses.Simultaneously, he would want to prevent anyinfluence that might cause social or politicalchange.
    12. 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 tolobbyists and campaign donors who opposeCastro’s regime. America also has a long standingadversarial relationship with Communistcountries which makes policy changes unlikely.
    13. 13. How is trade restrictedand regulated?
    14. 14. Protection withTariffs•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. 15. Protection With Non-TariffsNontariff Barriers influenceprices 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. 16. What are the direct & indirect affects of trade restrictions? by Dr.Rajesh Patel,Director,NRV07/04/12 05:56 AM 16 MBA,email:1966patel@gmail.com
    17. 17. How can internationalbusinesses deal with traderestrictions?Options:2. Move operations to lower-cost countries3. Concentrate on market niches that attract less international competition4. Adopt internal innovations that lead to greater efficiency and/or superior products5. Try to secure government protection by Dr.Rajesh Patel,Director,NRV07/04/12 05:56 AM 17 MBA,email:1966patel@gmail.com
    18. 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. 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. 20. Homework Wal-Mart de Mexico by Dr.Rajesh Patel,Director,NRV20 07/04/12 05:56 AM MBA,email:1966patel@gmail.com

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