Chapter 9: Formulation of National Trade Policies

1. Chapter 9:Formulation of National Trade Policies International Business, 4th Edition Griffin & Pustay ©2004 Prentice Hall

2. 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

3. 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

4. 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

5. Free Trade or Fair Trade? • Free trade –minimal influence from government • Fair trade – active intervention from government (managed trade) ©2004 Prentice Hall

6. Industry-Level Arguments • National Defense Argument • Infant Industry Argument • Maintenance of Existing Jobs • Strategic Trade Theory ©2004 Prentice Hall

7. 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

8. 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

9. Maintenance of Existing Jobs • Jobs in high-wage countries threatened by imports from low-wage countries • Forms of assistance • Tariffs • Quotas ©2004 Prentice Hall

10. 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

11. 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

12. 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

13. Map 9.1 An Effect of the Jones Act ©2004 Prentice Hall

14. 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

15. Figure 9.3 Tariff Revenues as a Percentage of Total Government Revenues for Selected Countries ©2004 Prentice Hall

16. Figure 9.4 • Impact of an Import Tariff on Demand for U.S.–Made Minivans ©2004 Prentice Hall

17. 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

18. A complex web of quotas restricts the ability of Chinese factories to sell internationally ©2004 Prentice Hall

19. Exports of Canadian softwood lumber to the U.S. have resulted in a 30-year long trade dispute ©2004 Prentice Hall

20. Figure 9.6 Types of Barriers to International Trade ©2004 Prentice Hall

21. Promotion of International Trade • Subsidies • Foreign Trade Zones (FTZ) • Export Financing Programs ©2004 Prentice Hall

22. Map 9.2 Foreign Trade Zone on Mauritius ©2004 Prentice Hall

23. 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

24. Controlling Unfair Trade Practices • Countervailing Duties (CVD) • Antidumping Regulations • Super 301 ©2004 Prentice Hall

25. 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