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2. Government policies and regulations affect trade.

3. To identify different types of governments • To discuss the ways in which governments influence international trade

4. Understanding a country’s form of government is an integral part of doing business globally.

5. a government system in which the nation’s citizens hold political power democracy a type of government system in which citizens have no influence on the government’s policies and laws totalitarianism

6. a type of totalitarian government whose leaders claim to be inspired by divine guidance theocracy a place where people can buy goods from other countries without paying extra taxes free tradezone

7. a treaty between countries in which the countries agree to not charge taxes, duties, or tariffs on goods that they trade free tradeagreement

8. Governments and International Business • Government policies and regulations affect all aspects of importing and exporting. • Legal systems regulate trade. • You need to be familiar with different types of governments and the legal requirements unique to international trade.

9. Types of Governments The two basic types of national governments are: Most governments have characteristics that fall somewhere in between these two types. • Democratic • Totalitarian

10. Types of Governments

11. Democratic Governments A democracy usually stresses the rights, freedom, and responsibilities of the individual. democracy a government system in which the nation’s citizens hold political power

12. Democratic Governments

13. Democratic Governments Many democracies use an economic system based on supply and demand, which is known as a market economy.

14. Totalitarian Governments With totalitarianism, the government controls all aspects of life, including attitudes, values, and beliefs. totalitarianism a type of government system in which citizens have no influence on the government’s policies and laws

15. Totalitarian governments can be theocratic or secular. Theocratic: Religious leaders are the political leaders. Secular: Leaders come from the military or rise up through the country’s single political party. Totalitarian Governments Types of totalitarian governments include: • Fascism • Authoritarianism • Communism

16. Totalitarian Governments When a nation’s government directs the economy, it is known as a command economy.

17. Totalitarian Governments A theocracy is not always a totalitarian dictatorship and may include a mixture of elected officials and religious influences. theocracy a type of totalitarian government whose leaders claim to be inspired by divine guidance

18. Mixed Systems • Most countries fall between democracies and totalitarian governments. • The United Kingdom is a constitutional monarchy. • China is a totalitarian government that is moving away from a command economy.

19. Mixed Systems Recall What is a mixed system?

20. Political Environments Two main factors guide governmental actions: Isolationism Conservative orLiberal Attitudes

21. Isolationism • Isolationism is a foreign policy that combines an avoidance of political and military alliances with a policy of economic nationalism or protectionism. • International trade is difficult with an isolationist country.

22. Conservative or Liberal Attitudes A conservative attitude favors limits on government activities and promotes private ownership and business domestically and internationally.

23. Conservative or Liberal Attitudes A liberal position favors more government involvement in business with strong consumer protections.

24. These are affected by a country’s policies on taxes, trade barriers, and free trade. Economic Policies and Practices The political environment of a country affects: • importing • exporting • international trade

25. International Taxes • Tax policies influence how people and businesses invest money. • If a company’s leaders find places where business tax rates are lower, they tend to locate their business in those places. • Companies take advantage of “enterprise zones.”

26. International Taxes Income Tax Value-Added Tax (VAT) Sales Tax Types ofInternational Taxes Payroll Tax Excise Tax

27. International Taxes Income Tax An annual tax on an individual’s or corporation’s net profit Sales Tax A tax on the sale of a product Excise Tax A tax on specific goods and services Payroll Tax A tax that employers withhold from employee’s paychecks Value-Added Tax (VAT) A sales tax paid on the increased value of a good

28. International Taxes Relate Have you ever paid income tax? Why do some people pay a higher rate of income tax than others?

29. Trade Barriers Reasons for trade barriers include: • Isolationist countries may wish to prevent outside influences. • Embargoes or boycotts may be used to make political statements.

30. Free Trade Benefits of free trade include: • Improved economic well-being • Availability of previously unavailable goods • Strengthening political alliances

31. Free Trade A governments may enter into a free trade agreement to encourage international business. free trade agreement a treaty between countries in which the countries agree to not charge taxes, duties, or tariffs on goods they trade NAFTA is an example of a free trade agreement.

32. Free Trade A country may offer to reduce the burden of double taxation for a company in exchange for gaining the benefit of economic growth that the company can provide.

33. Political Risk TradeSanctions War Expropriation Political Risks to International Businesses PoliticalTurbulence EconomicNationalism

34. Political Risk Trade Sanctions The use of a tariff, boycott, or embargo to make a political statement Expropriation The act of taking control and ownership of a foreign-owned company or operation EconomicNationalism The practice of discouraging the importing of goods in order to protect a domestic product PoliticalTurbulence The generic name for types of disruption such as protests, strikes, and other social disorder War A devastating blow to the local economy and to international business

36. 5.1 • What are the three main types of governments? democratic, totalitarian, and mixed systems

37. 5.1 • How do a nation’s values, attitudes, and actions affect the political environment? through isolationism or conservative or liberal attitudes

38. 5.1 • Why would a national government set up trade barriers? Isolationist countries may want to prevent outside influences. Embargoes and boycotts offer economic protection and make political statements.

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