1. Chapter 6 Business-Government Trade Relations

2. International Business 4e
Chapter Preview
Describe the political, economic, and cultural reasons nations intervene in trade
Identify the methods that nations use to promote trade
Describe the methods that nations use to restrict trade
Discuss the main institutions of the global trading system
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International Business 4e

3. International Business 4e
Political Motives
Protect
jobs
Preserve
national
security
Respond to
“unfair”
trade
Gain
influence
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International Business 4e

4. Protect infant industries International Business 4e
Economic Motives
Potential results
National income increases
Wrong industries protected
Firms grow complacent
Consumer prices rise
Public funds poorly spent
Protect infant industries
Protect emerging industries during development from global competition
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International Business 4e

5. Pursue strategic trade policy International Business 4e
Economic Motives
Potential results
Global industry created
Firms’ efficiency reduced
Domestic costs increase
Special interests benefit
Pursue strategic trade policy
Help companies achieve economies of scale and gain a first-mover advantage
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International Business 4e

6. Protect national identity International Business 4e
Cultural Motives
Result of increased
globalization
Nations block imports
deemed harmful
Usual suspects
are US media and
consumer goods
Protect national identity
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International Business 4e

7. Trade Promotion and Restriction
methods
Trade restriction
Subsidies
Export financing
Foreign trade zones
Special government agencies
Tariffs
Quotas
Embargoes
Local content requirements
Administrative delays
Currency controls
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International Business 4e

8. International Business 4e
Subsidies
Financial assistance in the form of cash, tax breaks, price supports, etc.
Potential results
Increased competitiveness
Encourage inefficient firms
Increased consumer prices
Overuse of resources
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International Business 4e

9. International Business 4e
Export Financing
Financing such as low-interest loans and loan guarantees
Export-Import Bank of the United States
Working capital loan guarantees
Credit information on nation or firm abroad
Export credit insurance against loss
Loan guarantees to buyers of U.S. goods
and much more…
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International Business 4e

10. International Business 4e
Foreign Trade Zones
Designated geographic region in which merchandise is allowed to pass through with lower customs duties (taxes) and/or fewer customs procedures
Purpose is to increase
employment and trade
within the nation
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International Business 4e

11. Special Government Agencies
Organize trade missions for officials and businesses
Operate export-promotion offices at locations abroad
Help import products the home nation does not produce
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International Business 4e

12. Tariffs Potential results Export tariff Transit tariff Import tariff
Government tax levied on a product as it enters or leaves a nation
Potential results
Protect domestic firms
from competitors
Generate income for the
government
Reduce competitiveness
of home-based firms
Raise consumer prices
Export tariff
Transit tariff
Import tariff
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International Business 4e

13. Import and Export Quotas
Restriction on the amount of a good that can enter or leave a country during a certain period of time
Import Quotas
Protect domestic producers of a good
Force outside firms to compete for market access
Export Quotas
Retain an adequate domestic supply of a product
Restrict world supply of a product to raise its price
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International Business 4e

14. Embargoes Complete ban on trade (imports and exports)
in one or more products with a particular country
Can be difficult for a nation to enforce
Often used to achieve political goals
Most restrictive nontariff trade barrier
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International Business 4e

15. Local Content Requirements
Laws that domestic producers must supply a specific amount of a good or service
Forces international companies to
employ local resources (usually labor)
in production process
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International Business 4e

16. Administrative Delays
Regulatory controls or bureaucratic rules to slow imports into a country
Inconvenient ports for imports
Product-damaging inspections
Understaffed customs offices
Lengthy licensing procedures
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International Business 4e

17. convertibility of a nation’s currency International Business 4e
Currency Controls
Restrictions on the
convertibility of a nation’s currency
Limit the amount of globally accepted currency available to pay for imports
Set an unfavorable exchange rate when paying for imports
© Prentice Hall, 2008
International Business 4e

18. General Agreement on Tariffs and Trade (GATT)
Treaty designed to promote free trade by
reducing tariffs and nontariff barriers to trade
Uruguay Round
Extended coverage to services
Improved intellectual property rules
Established the WTO
Reduced trade barriers in agriculture
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International Business 4e

19. World Trade Organization (WTO)
International organization that regulates
trade between nations
Dumping and antidumping duties
Doha Round of trade talks
Normal trade relations (“most-favored-nation status”)
Dispute Settlement Body
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International Business 4e

20. International Business 4e
Chapter Review
Describe the political, economic, and cultural reasons nations intervene in trade
Identify the methods that nations use to promote trade
Describe the methods that nations use to restrict trade
Discuss the main institutions of the global trading system
© Prentice Hall, 2008
International Business 4e