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Chapter 9: Formulation of National Trade Policies. International Business, 4 th Edition Griffin & Pustay. Chapter Objectives_1. Present the major arguments in favor of and against governmental intervention in international trade

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chapter 9 formulation of national trade policies

Chapter 9:Formulation of National Trade Policies

International Business, 4th Edition

Griffin & Pustay

©2004 Prentice Hall

chapter objectives 1
Chapter Objectives_1
  • Present the major arguments in favor of and against governmental intervention in international trade
  • Identify the advantages and disadvantages of adopting an industrial policy
  • Describe the major tools countries use to restrict trade

©2004 Prentice Hall

chapter objectives 2
Chapter Objectives_2
  • Analyze the role of domestic politics in formulating a country’s international trade policies
  • Specify the techniques countries use to promote international trade
  • Explain how countries protect themselves against unfair trade practices

©2004 Prentice Hall

issues on trade intervention
Issues on Trade Intervention
  • Should a national government intervene to protect the country’s domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports?
  • Should a national government directly help the country’s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs?

©2004 Prentice Hall

free trade or fair trade
Free Trade or Fair Trade?
  • Free trade –minimal influence from government
  • Fair trade – active intervention from government (managed trade)

©2004 Prentice Hall

industry level arguments
Industry-Level Arguments
  • National Defense Argument
  • Infant Industry Argument
  • Maintenance of Existing Jobs
  • Strategic Trade Theory

©2004 Prentice Hall

national defense argument
National Defense Argument
  • Country must be self-sufficient in critical raw materials, machinery, and technology or else be vulnerable to foreign threats
  • Appeals to general public
  • Protects steel, electronics, and machine tools industries, and merchant marines

©2004 Prentice Hall

infant industry argument
Infant Industry Argument
  • Imposition of tariffs to give U.S. firms temporary protection from foreign competition until firms are fully established
  • Powerful economic development strategy
  • Which industries should be protected? For how long?

©2004 Prentice Hall

maintenance of existing jobs
Maintenance of Existing Jobs
  • Jobs in high-wage countries threatened by imports from low-wage countries
  • Forms of assistance
    • Tariffs
    • Quotas

©2004 Prentice Hall

strategic trade theory
Strategic Trade Theory

National government can make its

country better off if it adopts trade

policies that improve the

competitiveness of its domestic firms

in oligopolistic industries

©2004 Prentice Hall

national trade policies
National Trade Policies
  • Economic Development Programs
    • Export promotion strategy
    • Import substitution strategy
  • Industrial Policy
    • Key domestic industries chosen, protected, and promoted
  • Public Choice Analysis
    • Consumers versus special interest groups

©2004 Prentice Hall

slide12

Boeing believes that loans given to Airbus by European governments to fund the A380’s research and development constitute a violation of international trade rules

©2004 Prentice Hall

barriers to international trade
Tariff barriers

Export tariff

Transit tariff

Import tariffs

Ad valorem

Specific

Compound

Non-tariff barriers

Quotas

Numerical export controls

Product and testing standards

Restricted access to distribution networks

Public-sector procurement policies

Regulatory controls

Currency controls

Investment controls

Local-purchase requirements

Barriers to International Trade

©2004 Prentice Hall

figure 9 3 tariff revenues as a percentage of total government revenues for selected countries
Figure 9.3 Tariff Revenues as a Percentage of Total Government Revenues for Selected Countries

©2004 Prentice Hall

figure 9 4
Figure 9.4
  • Impact of an Import Tariff on Demand for U.S.–Made Minivans

©2004 Prentice Hall

figure 9 5 tariff rate quota on widgets
Figure 9.5 Tariff Rate Quota on Widgets

A tariff rate quota imposes high tariff rates on imports above the threshold level

©2004 Prentice Hall

a complex web of quotas restricts the ability of chinese factories to sell internationally
A complex web of quotas restricts the ability of Chinese factories to sell internationally

©2004 Prentice Hall

exports of canadian softwood lumber to the u s have resulted in a 30 year long trade dispute
Exports of Canadian softwood lumber to the U.S. have resulted in a 30-year long trade dispute

©2004 Prentice Hall

promotion of international trade
Promotion of International Trade
  • Subsidies
  • Foreign Trade Zones (FTZ)
  • Export Financing Programs

©2004 Prentice Hall

controlling unfair trade practices
Controlling Unfair Trade Practices
  • International Trade Administration (ITA)
    • Division of U.S. Department of Commerce
    • Determines whether an unfair trade practice has occurred
    • Confirmed cases transferred to U.S. International Trade Commission (ITC)
  • Two types of unfair trade practices
    • Government subsidies
    • Unfair pricing practices

©2004 Prentice Hall

controlling unfair trade practices24
Controlling Unfair Trade Practices
  • Countervailing Duties (CVD)
  • Antidumping Regulations
  • Super 301

©2004 Prentice Hall

objectives of unfair trade practice laws
Objectives of Unfair Trade Practice Laws
  • Promote global efficiency by encouraging production in those countries that can produce a good most efficiently
  • Ensure that trade occurs on the basis of comparative advantage, not the size of government subsidies
  • Protect consumers from predatory behavior

©2004 Prentice Hall