Government Influence on Trade Flashcards
U.S. Vietnamese Catfish Debate
Government employed intervention tools such as dumping and 64% tariff
Why do governments intervene?
Because government goals and firm goals are not always aligned. There are both economic and non-economic reasons
Why is government intervention too quickly negative?
Is not condusive to trade freedom or overall wealth for companies because it ends up costing someone (consumers)
Who are the stakeholders in government policy?
- firms
- consumers
- employees
- local communities
- NGOs and environmental groups
- industry groups
- citizens
Who is the largest stakeholder for the government to consider?
The unemployed have a lot of influence and can cause civil unrest for the government
Economic reasons for intervention
- Fighting unemplyment
- Protecting infant industries
- Promoting industrialization
- Improving comparative position
Why would governments make taxpayers support specific industries?
Because these industries are more stable, have more income, and require more skill so that the country can increase exports
Tariff
Duty or tax on a product
Subsidies
Government support of an industry by offering financial incentives (cash distributions, tax breaks, indirect government contracts)
VERs
Voluntary Export Restraints
-Not really voluntary but countries can limit the number of exports in a specific industry
Embargo
Trade prohibition (USA to Cuba)
Domestic Content Laws
Requiring that a certain amount or percentage of production take place in the home country (local companies)
Administrative delays
A country can say that is wants to study and test issues more which is a thinly veiled tactic to give local companies a competitive advantage
Anti-dumping actions
Imposing a penalty to address dumping (fish example)
Immigration
Work visas can be used as a trade restriction to protect local jobs
Why is the “Chicken tax” ironic for the US?
In 1963 Germany imposed a 25% tariff on US chickens and the US retaliated with a 25% tariff on pickups and work vehicles from Europe. Fast forward to 2013 and to avoid this tax on its own products, Ford imports from Europe and converts them here. When the US government finds out, Ford has to pay fines and loses money so a US company now has to pay taxes to produce its own goods
Fighting unemployment logic and tools
Logic: The unemployed are a huge pressure group
Tools: Tariffs, quotas, domestic content laws
Problems: Affects another country’s exports and therefore their unemployment
Protecting infant industries: logic and tools
Logic: Long-term growth comes from new, innovative industries and new industries are too small to compete with global competitors
Tools: Subsidies, FDI regulations, domestic content laws
Problems: Makes foreign products uncompetitive, limits foreign ownership, unclear when an industry reaches adulthood
Maintaining essential industries: logic and tools
Logic: defense, transportation, scarce resources should be under control and available in case of a national emergency
Tools: Subsidies, export ban, FDI regulation
Problems: Hurts foreign competitors, how do we define “scarce”?
Maintaining spheres of influence: logic and tools
Logic: Politically friendly countries should be rewarded economically and politically unfriendly should be punished
Tools: Tied aid, preferential tariffs, subsidies, embargoes
Problems: Hurts firms and individuals who are not responsible for government’s policies
Improve comparative position: logic and tools
Logic: To level the playing field since some countries subsidize, manipulate currency, or have high tariffs or quotas
Tools: Anti-dumping and counterveiling procedures
Problems: Leads to prolonged retaliation, difficult to prove dumping versus effective cost containment
Why did Walmart pull out of India?
Indian government began requiring retailers to source 30% of products from small to medium Indian companies
Who wins by protectionism?
- Import-competing industries
- Government
- Domestic producers
- Special interest groups
Boeing v. Airbus
Because this industry bring great revenues and tax benefits to the country, both were being subsidized (very expensive to produce)
Boeing - Indirect subsidies by government, NASA, etc
Airbus - European union subsidizes airbus
