Goverment Influence

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

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Five Minute

 prohibit exports of art and historical items

 overcoming market imperfections

 Other direct-price influences

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