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Growth in Trade and FDI Indexed: 1950 = 100. 1600 1200 800 400 100. Trade. FDI. GDP. 1950 1960 1970 1980 1990 2000. Global Linkages. Management Linkages. Country A. Country B. Policy Linkages. Trade and Investment Linkages. Managers choose to…

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growth in trade and fdi indexed 1950 100
Growth in Trade and FDIIndexed: 1950 = 100

1600

1200

800

400

100

Trade

FDI

GDP

1950 1960 1970 1980 1990 2000

global linkages
Global Linkages

Management Linkages

Country

A

Country

B

Policy Linkages

Trade and Investment Linkages

slide3
Managers choose to…

Attack new markets

Entry modes

Shift manufacturing

Alliances, Mergers, etc.

Governments try …

Tariffs, quotas

FDI Regulations

Country

A

Country

B

Effects are …

Persistent Trade Deficit

Loss of Jobs

Higher Domestic Prices

policy exemplars
Policy Exemplars . . .
  • Buyout Bid of Fairchild Semiconductor
    • Buyout blocked by DoD -- national security
  • Big-3 Automakers
    • VERs of 1980s
    • Lobbying during Bush administration
  • Kodak in Japanese Market
    • SII Talks
    • § 301 Filing
  • GE’s Acquisition of Honeywell
    • Blocked by EU
how nations influence trade and investment activity through policy
How Nations Influence Trade and Investment Activity Through Policy
  • Overt/Visible Policies
  • Supporting/Strategic Policies

Follow-up Questions:

    • How well to these policies work?
    • What are the side effects?
    • Retaliation?
    • How might managers of MNCs respond?
ustr definition of trade barriers
USTR Definition of Trade Barriers
  • Government laws, policies, or practices that either:
    • Protect domestic products from competition
    • Artificially stimulate exports of particular domestic products
overt policy alternatives
Overt Policy Alternatives
  • Restrict Imports (tariffs, quotas, VERs)
  • Restrict FDI
    • Incoming (F/X controls, local content)
    • Outgoing (tax code, expatriation disincentives)
  • Restrict Exports (DoD restrictive munitions)
  • Export Promotion (subsidies, tax credits)
  • Import Promotion (tax credits, favors)
  • FDI Incentives (subsidies for infrastructure, training & development, market access)
  • Preferential Govt. Procurement
cost of import protection japanese rice market
Cost of Import ProtectionJapanese Rice Market

Domestic

Supply

World Price

Domestic

Demand

Domestic

Quantity

Produced

Domestic

Quantity

Consumed

cost of import protection japanese rice market10
Cost of Import ProtectionJapanese Rice Market

Domestic

Supply

Tariff Price

World Price

Domestic

Demand

New

Domestic

Quantity

Produced

New

Domestic

Quantity

Consumed

cost of import protection japanese rice market11
Cost of Import ProtectionJapanese Rice Market

Domestic

Supply

Deadweight

Loss

Tariff Price

Extra Revenue

Tariff

World Price

Domestic

Demand

New

Domestic

Quantity

Produced

New

Domestic

Quantity

Consumed

cost of import protection japanese rice market12
Cost of Import ProtectionJapanese Rice Market

Domestic

Supply

Deadweight

Loss

Tariff Price

Extra Revenue

Tariff

World Price

Domestic

Demand

New

Domestic

Quantity

Produced

New

Domestic

Quantity

Consumed

# Jobs saved?

At what price?

cost to domestic consumers per job saved
Cost to Domestic Consumers per Job Saved

Extra Revenue for Firm

Tariff Revenue to Government

Deadweight Loss

+

$800 million

$800 million

10,000 jobs

=

$80,000

/job

the economy stupid
The Economy, Stupid!

Strategic “Supporting” Policies:

  • Free trade and FDI
  • Infrastructure
  • Education
  • Antitrust and competition
  • Intellectual Property Protection
  • Tax Incentives on R&D
  • Technical Standards
  • Many others…
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