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Transcript of ©2004 Prentice Hall9-1 Chapter 9: Formulation of National Trade Policies International Business, 4...
©2004 Prentice Hall9-1
Chapter 9:Formulation of National Trade Policies
International Business, 4th Edition
Griffin & Pustay
©2004 Prentice Hall9-2
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 Hall9-3
Free Trade or Fair Trade?
Free trade –minimal influence from government
Fair trade – active intervention from government (managed trade)
©2004 Prentice Hall9-4
Industry-Level Arguments
National Defense Argument Infant Industry Argument Maintenance of Existing Jobs Strategic Trade Theory
©2004 Prentice Hall9-5
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 Hall9-6
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 Hall9-7
Maintenance of Existing Jobs
Jobs in high-wage countries threatened by imports from low-wage countries
Forms of assistance– Tariffs
– Quotas
©2004 Prentice Hall9-8
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 Hall9-9
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 Hall9-10
Barriers to International Trade
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
©2004 Prentice Hall9-11
Exports of Canadian softwood
lumber to the U.S. have
resulted in a 30-year long trade dispute
©2004 Prentice Hall9-12
Figure 9.6 Types of Barriers to International Trade
©2004 Prentice Hall9-13
Promotion of International Trade
Subsidies Foreign Trade Zones (FTZ) Export Financing Programs
©2004 Prentice Hall9-14
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 Hall9-15
Controlling Unfair Trade Practices
Countervailing Duties (CVD) Antidumping Regulations Super 301
©2004 Prentice Hall9-16
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