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Trade Protectionism
6-1
Copyright © 2015 Pearson Education Ltd.
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
6-4
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The Role of Stakeholders
Proposed policies on trade spark debate
Stakeholders include
Workers
Owners
Suppliers
Local politicians
The non-involved consumers (jobs/income are not
affected by trade policies) usually don’t care—They
want the lowest price for a product.
6-5
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Economic Rationales for
Government Intervention
Why governments intervene in trade
Economic rationales
Fighting unemployment
Protecting infant industries
Promoting industrialization
Non-economic rationales
Maintaining essential industries
Promoting acceptable practices abroad
6-7
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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
6-8
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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
6-9
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Economic Relationships
With Other Countries
Trade controls can be used
to improve the balance of payments
to gain fair access to foreign markets
comparable access argument
as a bargaining tool
believability and importance
to control prices
dumping
optimum-tariff theory
6-10
Noneconomic Rationales for
Government Intervention
Noneconomic rationales include
Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of
influence
Preserving national culture
6-11
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Instruments of Trade Control
Two types of trade controls
those that indirectly affect theamount traded
by directly influencing prices of exports or
imports
those that directly limit the amount of a good
that can be traded
6-12
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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
6-13
Nontariff Barriers:
Direct Price Influencers
Subsidies
direct assistance to companies to make them
more competitive
agricultural subsidies
valuation problems
6-14
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Nontariff Barriers:
Direct Price Influencers
Aid and loans
tied
untied
Customs valuation
Other direct-price influences
special fees and requirements
6-15
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Nontariff Barriers:
Quantity Controls
Quotas
limit
the quantity of a product that can
be imported or exported in a given time
frame
Voluntary export restraint (VER)
Embargoes
6-16
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Nontariff Barriers:
Quantity Controls
“Buy local” legislation
Standards and labels
Specific permission requirements
import or export license
Administrative delays
Reciprocal requirements
Countertrade or offsets
Restrictions on services
6-17
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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
6-18
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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
6-19
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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
6-20
Copyright © 2015 Pearson Education Ltd.