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Growth in Trade and FDI Indexed: 1950 = 100

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

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  1. Growth in Trade and FDIIndexed: 1950 = 100 1600 1200 800 400 100 Trade FDI GDP 1950 1960 1970 1980 1990 2000

  2. Global Linkages Management Linkages Country A Country B Policy Linkages Trade and Investment Linkages

  3. 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

  4. 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

  5. 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?

  6. Free Trade Doubletalk

  7. USTR Definition of Trade Barriers • Government laws, policies, or practices that either: • Protect domestic products from competition • Artificially stimulate exports of particular domestic products

  8. 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

  9. Cost of Import ProtectionJapanese Rice Market Domestic Supply World Price Domestic Demand Domestic Quantity Produced Domestic Quantity Consumed

  10. Cost of Import ProtectionJapanese Rice Market Domestic Supply Tariff Price World Price Domestic Demand New Domestic Quantity Produced New Domestic Quantity Consumed

  11. 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

  12. 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?

  13. 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

  14. FDI: Host Country Perspective

  15. FDI: Home Country Perspective

  16. Porter’s Diamond of “National Competitive Advantage”

  17. 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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