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MGMT 350 Chapter 7

Governmental Influence on Trade

Stakeholders Affecting Government Policies All countries try to influence trade. To achieve economic, social, & political objectives. Often there are conflicting interests. There are various Interest Groups (specific industries, consumers, political groups). Try to balance various interest gro
Why Governments Intervene in Trade Economic Rationales: preventing unemployment, protecting infant industries, industrialization, comparative position Noneconomic Rationales: essential industries, unfriendly countries, spheres of influence, national identity
Economics: Preventing Unemployment By restricting imports, helps promote domestic production and thus improve employment (BUT... retaliation, higher prices)
Economics: Protecting Infant-Industries The infant industry argument for protection holds that gov prevention of import competition is necessary to help certain industries move from high-cost to low-cost production ( it fair?)
Economics: Promoting Industrialization Countries seek protection to promote industrialization b/c of belief that industrialization...brings faster growth, employment, investment funds, diversifies, stable, higher income, nation-building
Economics: Improve Comparative Position Trade controls are used to improve performance relative to other countries such as...balance of payments, fair access to foreign mkts, bargaining tool, prices, prevent monopoly, avoid dumping
Non-Economic: Maintaining Essential Industries Protect industries considered essential or critical to the country's protection and prosperity ( must determine which are essential (Food, Defense, Utility), Consider costs vs alternatives, consider political consequences).
Non-Economic: "Unfriendly" Countries Trade controls are used to prevent enemies of potential enemies from getting strategic goods, like computer or nuclear technology. Motive is political. Could retaliate. Has economic costs.
Non-Economic: Spheres of Influence Governments give aid, credits, and imports encouragement to countries that support their geo-political objectives. A country's trade restrictions may coerce governments to follow certain political actions or punish companies whose gov does not
Non-Economic: Preserve 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. (movies?)
Methods of Trade Interventions Governments use 2 main methods of intervention: 1. Tariff Barriers: affects price 2. Non-Tariff Barriers: affects price and quantity
Tariff Based Intervention Types of Tariff: -Import: charged at import -Transit: charged as goods pass through a country -Export: charged at export Significant revenue source for developing countries
Non-Tariff Based Intervention: Direct Price Influences The main non-tariff barriers that affect price are: Subsidies: farm subsidies for sugar in U.S. Aid and Loans Customs Valuation Other: prepay, service fees, licenses
Non-Tariff Based Intervention: Quality Controls Trade controls that directly affect quantity (and indirectly affect price) include: -Quotas -Voluntary export restraint -"Buy local" legislation -Standards and label -Specific permission requirement -Admin delays -Restrict services
Dealing with Governmental Trade Influences When facing import competition, companies can: -move abroad -seek other markets -become stronger -influence gov for protection but not all companies want protection (more global ones want free trade)
Created by: cre8nmydestiny
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