Chapter 7 - Government Intervention Flashcards
Protectionism
national economic policy that restricts free trade
- raise revenue
- protect domestic industries
Customs
checkpoint at national ports of entry where officials inspect imported goods and levy tariffs
Consequences of protectionism
- low supply of goods for buyers (fewer choices)
- price inflation
- lower competitiveness w/ other nations
Protection of a national economy vs an infant industry
- Weak or young economies sometimes need protection from foreign competitors
- young industry may need protection, to give it a chance to grow and succeed
National Strategic priorities (what does protection do)
- helps ensure the development of industries
- growth in IT, automotive, pharmaceuticals, or financial services
- ## helps preserve domestic jobs
Tariff
tax imposed on imported products
- generates gov. revenue, discourages product imports
Quota
quantitative restriction on imports of a product during a specified time period
Local content requirements
requirement that firms include a minimum percentage of locally sourced inputs in the production of given products or services
Regulations and technical standards
safety, health, technical regulations, labeling restrictions
Administrative and bureaucratic procedures
complex procedures or requirements imposed on importers or foreign investors that hinder trade and investment
FDI and ownership restrictions
rules that limit the ability of foreign firms to invest in certain industries or acquire local firms
Subsidy
government grants intended to ensure success by facilitating production at reduced prices, or encouraging exports (tax breaks, infrastructure, cash)
How do firms respond to gov. intervention?
1) research to gather knowledge and intelligence
2) choose an appropriate entry strategies
3) take advantage of foreign trade zones
4) seek good customs classifications for exported products
5) take advantage of gov. support programs (ex: investment incentives)
6) lobby for freer trade & investment
Regional economic integration
- 50% of world trade occurs under trade agreements signed by groups of countries
- cooperating nations: increased living standards, lower prices, more efficient resource
Economic bloc
- geographic area consisting of two or more countries to pursue economic integration (reducing tariffs & barriers)
Four possible levels of regional integration
1) Free trade area - countries agree to get rid of trade barriers in BLOC and maintain international trade policies outside BLOC
2) Customs Union - harmonize their trade policies toward nonmember countries (tarrif/non-tarrif barriers)
3) Common Market - like a customs union but factors of production (capital, labor, and technology) move freely among the member countries
4) Economic Union - like a common market but aim for common fiscal and monetary policies, and standardized commercial regulations
What are some leading economic BLOCS in the European Union?
1) market access (barriers are eliminated)
2) common market (Barriers to cross-border movement of production factors)
3) trade rules (Cross-national customs procedures and regulations have been eliminated)
4) standards harmonization (Technical standards,
regulations, and enforcements = harmonized)
5) common taxation, social welfare policies (ultimate goal)
European Union factors
- 28 members
- founders = Belgium, Italy, France, Germany, Netherlands
Passage of NAFTA
- 1994 facilitated by the maquiladora program
- US firms found factories to access low-cost labor without significant tariffs
MERCOSUR
- leading economic bloc in South America for all regions’ GDP
- initial members = Argentina, Brazil, Paraguay, and Uruguay
Why do nations pursue economic integration?
- to expand market size
- achieve economies of scale and productivity
- attract direct investment from outside the BLOC
- acquire stronger defensive and political posture
Implication of regional integration for the firm
- Internationalization by firms inside the economic bloc
- Rationalization of operations
- Regional products and marketing strategy
- Internationalization by firms from outside the
bloc
