Ch.8 Govt. Intervention in IBUS

Question 1

Protectionism

Answer 1

refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition

Question 2

Government intervention arises typically in the form of …?

Answer 2

tariffs(e.g. duty), nontariff trade barriers(e.g. quota), and investment barriers(target FDI)

Question 3

Rationale for government Intervention

Answer 3

Governments impose trade barriers to achieve political, social, or economic objectives. Such barriers are either defensive or offensive

Question 4

Defensive Barriers for Govt Intervention…

Answer 4

barrriers safeguard industries, workers, special interest groups, protect infant industries, and promote national security (export controls)

Question 5

Offensive barriers

Answer 5

pursue strategic or public policy objective, such as increasing employment or generating taxes

Question 6

Instruments of Government Intervention

Answer 6

tariff- a tax on imports

nontariff trade barrier-government policy,regulation, or procedure that impedes trade

quota- quantitive restriction on imports of a specific product

investment barriers- rules or laws that hinder foreign direct investment

Question 7

Other types of Govt intervention instruments

Answer 7

regulations and technical standards- safety, health, or technical regulations

administrative bureaucratic procedures- complex procedures or requirements imposed on importers of foreign investors that hinder trade and investment

FDI and Ownershp Restrictions- Rules that limit the ability of foreign firms to invest in certain industries or acquire local firms

Question 8

Currency Controls

Answer 8

countries may also impose currency controls to minimize international withdrawal of national currency

Question 9

FDI and Ownership Restrictions esure that..?

Answer 9

the nation maintains partial or full ownership of firms within its national borders.

Question 10

Subsidies

Answer 10

a form of payment or other material support provided by the government. They are meant to ensure the survival of firms by facilitating production at reduced prices or by encouraging exports

Question 11

Foreign governments may offset foreign subsidies by imposing…?

Answer 11

countervailing duties

Question 12

Dumping

Answer 12

when firms charge abnormally low prices abroad (govt may impose an anti-dumping duty)

Question 13

Governments support domestic firms by

Answer 13

providing investment incentives and biased government procurement policies

Question 14

Consequences of Government Intervention

Answer 14

Economic freedom flourishes when government supports the institutions necessary for that freedom and provides appropriate level of intervention and regulation. Govt intervention and trade barriers raise ethical concerns for developing economies like high tariffs on imports. Govt intervention can also offset harmful effects such as protect jobs or counterbalance harmful effects that disproportianately affect the poor

Question 15

Economic Freedom

Answer 15

the extent of government intervention in the national economy, assessed using the Heritage Foundations index of Economic Freedom

Question 16

Govt intervention and trade barriers may disproportianately impact…

Answer 16

developing economies and low-income consumers because countries in, for example: Africa and Asia are taxed at relatively unjustly higher levels.

Question 17

Evolution of government intervention

Answer 17

1800s many countries imposed substantial

1930’s-countries reduced trade barriers

Import substitution-(L.A. Countries -delayed free trade)

Industrializationpost WWII (prog. trade policies)

Protectionist Policies-India till 1990high/now declining

1980’s-China liberalized economy

GAAT-most important for reducing trade barriers

1995N WTO replaced; 150 members nearly all trade world

Question 18

Crisis Impetus ?

response to…

Answer 18

inadequate regulation in the banking/finance sectors

Response- new gov regulations and increasing protectionism to safeguard jobs, wages, and protect domestic industries via subsidies

Question 19

Ripple Effect

Answer 19

Government reforms are extending beyond the banking and financial areas

Question 20

HOW FIRMS RESPOND TO GOV INTERVENTION

Strategies for Managers…

Answer 20

Research to gather knowledge and intellgence of trade and investment barriers abroad

Choose the most appropriate entry strategies (FDI or joint)

Take advantage of Foreign Trade zones where imports receive preferential tariff treatment

MGMT should try to obtain a favorable export classification and be familiar with harmonized code schedules Which provide standardized directory on tariff

Govt assistance in forms of subsidies

Firms lobby the home and foreign gov for free trade