hill gbt6e ppt chapter06 (1)

8/4/2019 Hill Gbt6e PPT Chapter06 (1)

http://slidepdf.com/reader/full/hill-gbt6e-ppt-chapter06-1 1/14

Global Business Today 6e

by Charles W.L. Hill

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.



Chapter 6

The Political Economyof International Trade



6-3

Introduction

Free trade refers to a situation where agovernment does not attempt to restrictwhat its citizens can buy from another

country or what they can sell to anothercountry

While many nations are nominally

committed to free trade, they tend tointervene in international trade to protectthe interests of politically importantgroups



6-4

Instruments of Trade Policy

Question: How do governments intervene ininternational trade?

There are seven main instruments of tradepolicy1. Tariffs – specific and ad valorem2. Subsidies3. Import quotas

4. Voluntary export restraints5. Local content requirements6. Antidumping policies7. Administrative policies



6-5

The Case forGovernment Intervention

Question: Why do governments intervene intrade?

There are two types of arguments

1. Political arguments are concerned withprotecting the interests of certain groupswithin a nation (normally producers), oftenat the expense of other groups (normallyconsumers)

2. Economic arguments are typicallyconcerned with boosting the overall wealthof a nation (to the benefit of all, bothproducers and consumers)



6-6


Political arguments for governmentintervention include

1. protecting jobs

2. protecting industries deemed important fornational security

3. retaliating to unfair foreign competition

4. protecting consumers from “dangerous”products

5. furthering the goals of foreign policy

6. protecting the human rights of individuals inexporting countries



6-7


Economic arguments for governmentintervention in international tradeinclude

1. The infant industry argument

2. Strategic trade policy



6-8

The Revised Case for Free Trade

New trade theorists believe governmentintervention in international trade is justified

Classic trade theorists disagree

Some new trade theorists believe that whilestrategic trade theory is appealing in theory, itmay not be workable in practice – they suggesta revised case for free trade

Two situations where restrictions on trade may

be inappropriateRetaliation

Domestic Policies



6-9

Development ofthe World Trading System

Up until the Great Depression of the1930s, most countries had some degreeof protectionism

In 1930, the U.S. enacted the Smoot-Hawley Act, which created significantimport tariffs on foreign goods

Other nations took similar steps and asthe depression deepened, world tradefell further



6-10


Since World War II, an internationaltrading framework has evolved to governworld trade

In its first fifty years, the framework wasknown as the General Agreement onTariffs and Trade (GATT)

Since 1995, the framework has beenknown as the World Trade Organization(WTO)



6-11


Since its establishment, the WTO has emergedas an effective advocate and facilitator of futuretrade deals, particularly in such areas asservices

So far, most countries have adopted WTOrecommendations for trade disputes

The WTO has brokered negotiations toreform the global telecommunications andfinancial services industries

The 1999 meeting of the WTO in Seattledemonstrated that issues surrounding freetrade have become mainstream, anddependent on popular opinion



6-12


The WTO is currently focusing on1. Anti-dumping policies The WTO is encouraging members to strengthen the

regulations governing the imposition of antidumpingduties

2. Protectionism in agriculture The WTO is concerned with the high level of tariffs and

subsidies in the agricultural sector of many economies3. Protecting intellectual property Members believe that the protection of intellectual

property rights is essential to the international tradingsystem TRIPS obliges WTO members to grant and enforce

patents lasting at least 20 years and copyrights lasting50 years



6-13


4. Market access for nonagricultural goods and services The WTO would like to bring down tariff rates on

nonagricultural goods and services, and reduce thescope for the selective use of high tariff rates

5. A new round of talks: Doha The WTO launched a new round of talks in 2001 to

focus on cutting tariffs on industrial goods and services phasing out subsidies to agricultural producers reducing barriers to cross-border investment

limiting the use of anti-dumping laws



6-14

Implications for Managers

Question: Why should international

managers care about the politicaleconomy of free trade or about therelative merits of arguments for freetrade and protectionism?

Trade barriers impact firm strategyFirms can play a role in promoting free

trade or trade barriers

hill gbt6e ppt chapter06 (1)

Documents