International Business

Copyright © 2013 Pearson Education7-1

International Business

Environments & Operations

14e Global Edition

Daniels ● Radebaugh ● Sullivan


Chapter 7

Governmental Influence on Trade


Learning Objectives To explain the rationales for governmental

policies that enhance and restrict trade To discuss instruments of trade control To describe the potential and actual effects of

governmental intervention on the free flow of trade

To demonstrate the business uncertainties and business opportunities created by governmental trade policies

To explain how firm can respond to government intervention.


Conflicting Results of Trade Policies

Governments intervene in trade to achieve economic, social, and political goals

Policymakers are challenged by conflicting objectives interest groups


Economic Rationales for Government InterventionLearning Objective 1: To explain the rationales for governmental policies that enhance and restrict trade


Economic Rationales for Government Intervention

Why Governments Intervene in Trade


Economic rationale1. Fighting unemployment2. Protecting infant industries

government protection of import competition is necessary to help certain industries evolve from high-cost to low-cost production

3. Promoting industrialization Countries promote industrialization because it

brings faster growth than agriculture brings in investment funds diversifies the economy brings more income than primary products do reduces imports and promotes exports helps the nation-building process


Economic rationale4. Improving comparative position

Trade controls can be used to improve the balance of payments to gain fair access to foreign markets as a bargaining tool to control prices


Noneconomic Rationales

1. Maintaining essential industries protect essential industries so the country is not dependent

on foreign supplies during war

2. Promoting acceptable practices abroad 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

3. Maintaining or extending spheres of influence4. Preserving national culture


Instruments of Trade Control

Learning Objective 4: To 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 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 Aid and loans

tied untied

Customs valuation Other direct-price influences

special fees and requirements


Nontariff Barriers: Quantity Controls

Quotas Voluntary export restraint (VER) Embargoes

Local content requirement Arbitrary standard Licensing agreement

import or export license

Administrative delays Reciprocal requirements Restrictions on services


Dealing with Governmental Trade Influencers

Learning Objective:To demonstrate the business uncertainties and business opportunities created by governmental trade policies

Copyright © 2013 Pearson Education

Types and Effects of Government Intervention

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 8-16


Government Intervention Types and Effects (cont’d)



Government Intervention Types and Effects (cont’d)


How Firms Should Respond to Government Intervention

• Research to gather knowledge and intelligence. • Choose the most appropriate entry strategies. • Seek favorable customs classifications for exported products• Take advantage of investment incentives and other

government support programs.

• Lobby for freer trade and investment.


Examples•The government of Hong Kong put up much of the cash to build the Hong Kong Disney Park.

International Business

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