Ch.8 Govt. Intervention in IBUS Flashcards
Protectionism
refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition
Government intervention arises typically in the form of …?
tariffs(e.g. duty), nontariff trade barriers(e.g. quota), and investment barriers(target FDI)
Rationale for government Intervention
Governments impose trade barriers to achieve political, social, or economic objectives. Such barriers are either defensive or offensive
Defensive Barriers for Govt Intervention…
barrriers safeguard industries, workers, special interest groups, protect infant industries, and promote national security (export controls)
Offensive barriers
pursue strategic or public policy objective, such as increasing employment or generating taxes
Instruments of Government Intervention
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
Other types of Govt intervention instruments
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
Currency Controls
countries may also impose currency controls to minimize international withdrawal of national currency
FDI and Ownership Restrictions esure that..?
the nation maintains partial or full ownership of firms within its national borders.
Subsidies
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
Foreign governments may offset foreign subsidies by imposing…?
countervailing duties
Dumping
when firms charge abnormally low prices abroad (govt may impose an anti-dumping duty)
Governments support domestic firms by
providing investment incentives and biased government procurement policies
Consequences of Government Intervention
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
Economic Freedom
the extent of government intervention in the national economy, assessed using the Heritage Foundations index of Economic Freedom
Govt intervention and trade barriers may disproportianately impact…
developing economies and low-income consumers because countries in, for example: Africa and Asia are taxed at relatively unjustly higher levels.
Evolution of government intervention
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
Crisis Impetus ?
response to…
inadequate regulation in the banking/finance sectors
Response- new gov regulations and increasing protectionism to safeguard jobs, wages, and protect domestic industries via subsidies
Ripple Effect
Government reforms are extending beyond the banking and financial areas
HOW FIRMS RESPOND TO GOV INTERVENTION
Strategies for Managers…
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