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5.1 of IBE

The document discusses governmental influence on trade through various trade policies and interventions. It explains that governments pursue both economic and noneconomic objectives through trade policies, such as fighting unemployment, protecting infant industries, and maintaining national identity. It also outlines different instruments that governments use for trade control, including tariffs, quotas, subsidies, and standards/labels. The document notes the conflicting results of trade policies and debates around using employment as an economic objective.

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27 views18 pages

5.1 of IBE

The document discusses governmental influence on trade through various trade policies and interventions. It explains that governments pursue both economic and noneconomic objectives through trade policies, such as fighting unemployment, protecting infant industries, and maintaining national identity. It also outlines different instruments that governments use for trade control, including tariffs, quotas, subsidies, and standards/labels. The document notes the conflicting results of trade policies and debates around using employment as an economic objective.

Uploaded by

connect Gajera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Chapter - 7

Governmental Influence On Trade

7-1
Physical and Social Factors
Affecting the Flow of Goods and
Services

7-2
• Conflicting Results of Trade Policies:
 Despite the benefits from free trade-
governments intervene- economic, social, or
political objectives
 Apply trade policies – beneficial – some cases,
personal political longevity
 Government- help struggling companies that
are doing well- but impossible if other
countries retaliate against protectionist actions.
• i.e. U.S.- import restrictions- Chinese clothing and
textiles- China could take actions U.S. operating
companies- a worry expressed by (P&G)

7-3
• The role of Stakeholders:
 Trade regulation reform- affect stakeholders
• i.e. U.S. stakeholders- base of clothing production
 The Role of Consumers
• Buy best product with price- without caring
production origin
• Don’t realize how much retail prices rise in
aggregate- import restrictions
– i.e. U.S.- peanuts and sugar- price of peanut butter and
confectionary products

7-4
Why Governments Intervene in
Trade

7-5
Economic Rationales for
Governmental Intervention
1. Fighting Unemployment

• Most effective pressure- no other group has time and


incentive to protest publicly
• Displaced workers- least able to find alternative job at a
comparable salary.
 What’s Wrong with Full Employment as an
Economic Objective?
 Every county has economic objective- using trade
policy
7-6
Possible restrictions designed to create domestic
employment
• Prospect of retaliation
 May 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.
• Analyzing trade-offs
7-7
Protecting “Infant-Industries”
• The infant-industry argument for protection
holds that governmental prevention of
import competition is necessary to help
certain industries move from high-cost to
low-cost production
• Risks in designing industries
 Determining probability of success
 Identifying qualified industries

7-8
Developing an Industrial Base
• Countries seek protection to promote
industrialization because that type of production:
 Brings faster growth than agriculture.
 Brings in investment funds.
 Diversifies the economy.
 Brings more income than primary products do.
 Reduces imports and promotes exports.
 Helps the nation-building process.

7-9
Economic Relationships
with Other Countries
• Trade controls are used to improve economic
relations with other countries
• Their objectives include improving the balance of:
 payments
 raising prices to foreign consumers
 gaining fair access to foreign markets
 preventing foreign monopoly prices
 assuring that domestic consumers get low prices
 lowering profit margins for foreign producers

7-10
Noneconomic Rationales for
Government Intervention

1)Maintaining essential industries


• In protecting essential industries, countries
must:
 Determine which ones are essential.
 Consider costs and alternatives.
 Consider political consequences.

7-11
2) Preventing Shipments to
“Unfriendly” Countries
• Considerable governmental interference in
international trade is motivated by:
 political rather than economic concerns
 maintaining domestic supplies of essential
goods
 preventing potential enemies from gaining
goods that would help them achieve their
objectives

7-12
3) Extending spheres of influence

• Governments give aid and credits to, and


encourage imports from, countries that join
a political alliance or vote a preferred way
within international bodies.
• A country’s trade restrictions may coerce
governments to follow certain political
actions or punish companies whose
governments do not.

7-13
4) Preserving national identity
• To sustain this collective identity that sets
their citizens apart from those in other
nations, countries limit foreign products
and services in certain sectors.

7-14
Instruments of Trade Control
• Trade controls that directly affect price and
indirectly affect quantity include:
 tariffs
 subsidies
 customs-valuation methods
 special fees

7-15
Nontariff Barriers: Quantity Controls
• Trade controls that directly affect quantity and
indirectly affect price include:
 quotas
 voluntary export restraint  (VERs)
 “buy local” legislation
 standards and labels
 licensing arrangements
 specific permission requirements
 administrative delays
 reciprocal requirements
 restrictions on services
7-16
Dealing With Governmental Trade
Influences
• When facing import competition,
companies can:
 Move abroad
 Seek other market niches
 Make domestic output competitive
 Try to get protection

7-17
7-18

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