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Trade barriers in International Business

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Protectionism: Government's influence on trade
Tariff and Non Tariff Barriers

Published in: Leadership & Management
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Trade barriers in International Business

  1. 1. Trade Barriers: Governmental Influence on Trade Presented By: Jatin Vaid jatinvaid@gmail.com 1International Business - Jatin Vaid
  2. 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. 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. 4. 1. ECONOMIC REASONS Reasons for Government’s Intervention International Business - Jatin Vaid 4
  5. 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. 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. 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. 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. 9. 2. NON – ECONOMIC REASONS Reasons for Government’s Intervention International Business - Jatin Vaid 9
  10. 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. 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. 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. 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. 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. 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. 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. 17. Non Tariff Barriers • May directly affect either price or quantity of goods traded internationally. 17International Business - Jatin Vaid
  18. 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. 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. 20. THANK YOU! jatinvaid@gmail.com International Business - Jatin Vaid 20

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