Five Minute
Presentation
Chapter 6
Governmental
Influence on Trade
Learning Objectives
Explain why governments try to enhance and
restrict trade
Show the effects of pressure groups on trade
policies
Compare the potential and actual effects of
government intervention on the free flow of trade
Discuss the major means by which trade is
restricted and regulated
Learning Objectives
Demonstrate the business uncertainties
and opportunities created by
governmental trade policies
Discern how businesses may respond to
import competition
Fathom how the growing complexity of
products and trade regulations may affect
the future
Introduction
Protectionism - policies that
affect the ability of foreign producers to
compete in your home market
limit or enhance your company’s ability to sell
abroad or acquire needed foreign supplies
Introduction
Physical and Social Factors Affecting the Flow of Goods and Services
Conflicting Results
of Trade Policies
Governments intervene in trade to achieve
economic, social, and political goals
Policymakers are challenged by
conflicting objectives
interest groups
The Role of Stakeholders
Proposed policies on trade spark debate
Stakeholders include
Workers
Owners
Suppliers
Local politicians
Consumers usually don’t care
Economic Rationales for
Governmental Intervention
Learning Objective:
Explain why governments try to enhance
and restrict trade
Economic Rationales for
Government Intervention
Why governments intervene in trade
Economic rationales
Fighting unemployment
Protecting infant industries
Promoting industrialization
Improving comparative position
Non-economic rationales
Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
Preserving national culture
Fighting Unemployment
Learning Objective:
Show the effects of pressure groups on
trade policies
Fighting Unemployment
The unemployed are the most effective pressure
group
But, import restrictions
can lead to retaliation by other countries
are less likely retaliated against effectively by small
economies
are less likely to be met with retaliation if implemented
by small economies
may decrease export jobs because of price increases for
components
may decrease export jobs because of lower incomes
abroad
Protecting ‘Infant Industries’
Learning Objective:
Compare the potential and actual effects
of government intervention on the free
flow of trade
Protecting ‘Infant Industries’
The infant industry argument
government protection of import competition is
necessary to help certain industries evolve
from high-cost to low-cost production
Used by developing countries
Developing an Industrial Base
Countries promote industrialization
because it
brings faster growth than agriculture
brings in investment funds
diversifies the economy
creates growth in manufactured goods
reduces imports and promotes exports
helps the nation-building process
Economic Relationships
With Other Countries
Trade controls can be used
to gain fair access to foreign markets
as a bargaining tool
believability and importance
to control prices
dumping
optimum-tariff theory
Noneconomic Rationales for
Government Intervention
Noneconomic rationales include
Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
Preserving national culture
Maintaining Essential Industries
The essential industry argument
protect essential industries so the country is
not dependent on foreign supplies during war
Countries must
determine which industries are essential
consider costs and alternatives
consider political consequences
Promoting Acceptable
Practices Abroad
Import trade controls can be used
to promote changes in foreign countries’
political policies or capabilities
as a foreign policy weapon
to pressure governments to alter their stances
on a variety of issues
human rights
environmental protection
Maintaining or Extending
Spheres of Influence
Governments provide assistance and
encourage imports from countries that join
a political alliance or vote a preferred way
within international bodies
Cotonou Agreement
A country’s trade restrictions may coerce
governments to follow certain political
actions or punish companies whose
governments do not
Preserving National Culture
In order to preserve national culture,
countries
limit foreign products and services in certain
sectors
Canada’s cultural sovereignty
prohibit exports of art and historical items
deemed important to national heritage
Instruments of Trade Control
Learning Objective:
Illustrate the major means by which trade
is restricted and regulated
Instruments of Trade Control
Two types of trade controls
those that indirectly affect the amount traded
by directly influencing prices of exports or
imports
those that directly limit the amount of a good
that can be traded
Tariffs
Tariffs are also known as duties
refer to a government levied tax on goods
shipped internationally
Tariffs may be levied
on goods entering, leaving, or passing through
a country
for protection or revenue
on a per unit basis or a value basis
export tariffs
transit tariffs
import tariffs
Nontariff Barriers:
Direct Price Influencers
Subsidies
direct assistance to companies to make them
more competitive
agricultural subsidies
overcoming market imperfections
valuation problems
Nontariff Barriers:
Direct Price Influencers
Aid and loans
Other direct-price influences
special fees and requirements
Nontariff Barriers:
Quantity Controls
Quotas
limit the quantity of a product that can
be imported or exported in a given time
frame
Nontariff Barriers:
Quantity Controls
“Buy local” legislation
Standards and labels
Specific permission requirements
import or export license
Administrative delays
Restrictions on services
Dealing with Governmental
Trade Influencers
Learning Objective:
Demonstrate the business uncertainties
and business opportunities created by
governmental trade policies
Dealing with Governmental
Trade Influencers
Companies facing import competition can
Move abroad
Seek other market niches
Create greater efficiency or superior products
Try to get governmental protection
Tactics For Dealing
With Import Competition
Convince decision makers of the merits of
particular policies
Involve the industry and stakeholders
Prepare for changes in the competitive
environment
Dynamics and Complexity
Trade restriction changes bring about
winners and losers among countries,
companies, and workers
Gains to consumers from freer trade may
come at the expense of companies and
workers
The international regulatory situation is
becoming more complex
The term protectionism, when applied to
international trade, refers to ________.
A) governmental restrictions and competitive
support actions to affect trade flows
B) payments to dock workers to prevent
pilferage of imported shipments
C) border checks to prevent entry of illegal
aliens
D) methods used to prevent intellectual
property theft
Answer: A
governmental restrictions and competitive
support actions to affect trade flows
Managers should understand the effect of
trade protectionism because ________.
A) trade protectionism may limit the number of
people permitted to practice a specific
profession
B) trade protectionism requires the payment of
high insurance rates to transport goods
internationally
C) trade protectionism may prevent
companies' enactment of merger and
acquisition agreements
D) trade protectionism may make it difficult for
a company to buy what it needs from foreign
suppliers
Answer: D
trade protectionism may make it difficult for a
company to buy what it needs from foreign
suppliers
Assume a government places restrictions
on a specific product from a specific
foreign country. What would be the
government's most likely concern about
the foreign country's response?
A) the foreign producers raising the prices of
their exports
B) the foreign country restricting its own
imports
C) the foreign country restricting its exports in
that industry
D) the foreign producers seeking other
markets
Answer: B
the foreign country restricting its own imports
