International Business

Environments & Operations

Trade Protectionism

6-1
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 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

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 Introduction
Physical and Social Factors Affecting the Flow of Goods and Services

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 Conflicting Results
of Trade Policies
Governments intervene in trade to
achieve economic, social, and
political goals
Policymakers are challenged by
 conflicting objectives
 interest groups

6-4
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 The Role of Stakeholders
 Proposed policies on trade spark debate
 Stakeholders include
 Workers
 Owners
 Suppliers
 Local politicians
 The non-involved consumers (jobs/income are not
affected by trade policies) usually don’t care—They
want the lowest price for a product.

6-5
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 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

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 Preserving national culture
 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

6-7
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 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

6-8
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 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

6-9
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 Economic Relationships
With Other Countries
 Trade controls can be used
 to improve the balance of payments
 to gain fair access to foreign markets
 comparable access argument

 as a bargaining tool
 believability and importance

 to control prices
 dumping

 optimum-tariff theory
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 Noneconomic Rationales for
Government Intervention
Noneconomic rationales include
 Maintaining essential industries
 Promoting acceptable practices abroad
 Maintaining or extending spheres of
influence
 Preserving national culture

6-11
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 Instruments of Trade Control
 Two types of trade controls
 those that indirectly affect theamount traded
by directly influencing prices of exports or
imports
 those that directly limit the amount of a good
that can be traded

6-12
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 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
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 Nontariff Barriers:
Direct Price Influencers
 Subsidies
 direct assistance to companies to make them
more competitive
agricultural subsidies

overcoming market imperfections

valuation problems

6-14
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 Nontariff Barriers:
Direct Price Influencers
 Aid and loans
 tied
 untied

 Customs valuation
 Other direct-price influences
 special fees and requirements

6-15
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 Nontariff Barriers:
Quantity Controls
 Quotas
 limit
the quantity of a product that can
be imported or exported in a given time
frame
Voluntary export restraint (VER)

Embargoes

6-16
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 Nontariff Barriers:
Quantity Controls
 “Buy local” legislation
 Standards and labels
 Specific permission requirements
 import or export license
 Administrative delays
 Reciprocal requirements
 Countertrade or offsets
 Restrictions on services
6-17
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 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

6-18
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 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

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 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

6-20
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