BUS 200 - Governments and Trade PDF

| business.gmu.edu BUS 200 – Governments and Trade Learn Here. Lead Anywhere.  | business.gmu.edu Learning Objectives Explain why governments sometimes intervene in trade. Outline the instruments that governments use to promote t...

| business.gmu.edu BUS 200 – Governments and Trade Learn Here. Lead Anywhere.  | business.gmu.edu Learning Objectives Explain why governments sometimes intervene in trade. Outline the instruments that governments use to promote trade. Describe the instruments that governments use to restrict trade. Summarize the main features of the global trading system. Learn Here. Lead Anywhere.  | business.gmu.edu Why Do Governments Intervene in Trade? Free trade Pattern of imports and exports that occurs in the absence of trade barriers Despite the advantages of open and free trade among nations, governments have long intervened in the trade of goods and services. Learn Here. Lead Anywhere.  | business.gmu.edu Why Do Governments Intervene in Trade? Political Motives Protect jobs Loss of US manufacturing jobs to China and Mexico Preserve national security Ensure domestic production of essential goods Limit exports of dual-use products Respond to unfair trade China’s switch to Vietnam to circumvent US trade policy to go against foreign-subsidized goods that are cheaper than domestic ones Gain influence Cuba Learn Here. Lead Anywhere.  | business.gmu.edu Cultural Insights: A Culture of Business Security As well as the need to secure lengthy supply chains and distribution channels, companies must secure their facilities, information systems, and reputations Facilities risk Information risk Reputational risk What to do Want to know more? Learn Here. Lead Anywhere.  | business.gmu.edu Why Do Governments Intervene in Trade? Economic Motives protect national and local businesses Protect infant industries Infant industry argument Young industries need protection from international competition during their development until they grow sufficiently competitive Pursue strategic trade policy Strategic trade policy Attempts to affect the outcomes of strategic competition among companies in favor of domestic firms Learn Here. Lead Anywhere.  | business.gmu.edu Why Do Governments Intervene in Trade? Cultural Motives Achieve cultural objectives Canada’s efforts to mitigate influence of US entertainment products Protection of national identity France’s protection of its language prevent cultural appropriation within products Learn Here. Lead Anywhere.  | business.gmu.edu Instruments of Trade Promotion Managed trade Government efforts to achieve trade objectives pertaining to market shares or quantities of specific products Learn Here. Lead Anywhere.  | business.gmu.edu Instruments of Trade Promotion: Subsidies Subsidy Financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, or other forms All governments provide subsidies to certain industries and businesses. “Made in China 2025” EU and US subsidies in strategic industries Farm subsidies Learn Here. Lead Anywhere.  | business.gmu.edu Instruments of Trade Promotion: Export Assistance Governments can provide export assistance to their domestic companies Low-interest-rate loans Loan guarantee In the United States: Export-Import Bank of the United States (Ex-Im Bank) International Development Finance Corporation Learn Here. Lead Anywhere.  | business.gmu.edu Global Manager: Experts in Exporting Several Ex-Im Bank programs can help US businesses expand abroad: City/State Program Working Capital Loan Guarantee Program Credit Information Services Credit Insurance Guarantee Program Direct Loan Program Learn Here. Lead Anywhere.  | business.gmu.edu Instruments of Trade Promotion: Foreign Trade Zones Foreign trade zones (FTZ) Designated geographic region through which merchandise is allowed to pass with lower customs duties (taxes) and/or fewer customs procedures Can be used for final product assembly or storage prior to shipping Mexico’s maquiladoras Learn Here. Lead Anywhere.  | business.gmu.edu Instruments of Trade Promotion: Special Government Agencies Trade-promotion agencies Especially helpful for small and medium-sized businesses with limited resources Organize trips to meet potential business partners Open trade office in foreign countries ProChile Japan External Trade Organization Learn Here. Lead Anywhere.  | business.gmu.edu Instruments the U.S has a quota on sugar of Trade Restriction - in the U.S, sugar is grown in florida on sugar beets - sugar producers in Florida wanted to limit imported sugar - didn't help consumers bc they had to pay more for consumers - didn't help candy manufacturers - only helped sugar producers Trade Restriction Tariffs Quotas quantifiable limit on trades Embargoes Local Content Requirements Administrative Delays Currency Controls government limiting the amount of dollars (or any currency) that can be taken out of a country. Learn Here. Lead Anywhere.  Instruments of Trade Restriction Tariff-Quotas Figure 7.1 How a Tariff-Quota Works Source: World Trade Organization Web site (www.wto.org) Learn Here. Lead Anywhere.  Global Trading System the first intl organization which focused on regulating trade in a global era renamed and reformed to become the WTO Learn Here. Lead Anywhere.  | business.gmu.edu Global Trading System General Agreement on Tariffs and Trade (GATT) The General Agreement on Tariffs and Trade (GATT): a treaty designed to promote free trade by reducing both tariff and nontariff barriers to international trade Between 1947 and 1988: Highly successful Reduced average tariffs from 40 percent to 5 percent Multiplied the volume of international trade by a factor of 20 By the middle to late 1980s: Challenges Nontariff barriers Services not covered by the original GATT Learn Here. Lead Anywhere.  | business.gmu.edu General Agreement on Tariffs and Trade (GATT) Round of Negotiations Table 7.3 Completed Rounds of GATT Year Site Number of Topics Covered Countries Involved 1947 Geneva, Switzerland 23 Tariffs 1949 Annecy, France 13 Tariffs 1951 Torquay, England 38 Tariffs 1956 Geneva 26 Tariffs 1960-1961 Geneva (Dillon Round) 26 Tariffs 1964-1967 Geneva (Kennedy Round) 62 Tariffs, antidumping measures 1973-1979 Geneva (Tokyo Round) 102 Tariffs, nontariff measures, “framework agreements” 1986-1994 Geneva (Uruguay Round) 123 Tariffs, nontariff measures, rules, services, intellectual property, dispute settlement, investment measures, agriculture, textiles and clothing, natural resources, creation of the World Trade Organization Source: Based on About the WTO, World Trade Organization website (www.wto.org) Learn Here. Lead Anywhere.  | business.gmu.edu General Agreement on Tariffs and Trade (GATT) Uruguay Round of Negotiations (1986-1994) Agreement on services Agreement on intellectual property Agreement on agricultural subsidies Creation of the WTO Learn Here. Lead Anywhere.  | business.gmu.edu Global Trading System World Trade Organization (WTO) The World Trade Organization (WTO): the international organization that regulates trade among nations Main goals of the WTO Help the free flow of trade Help negotiate further opening of markets Settle trade disputes among members The principle of nondiscrimination (normal trade relations) Learn Here. Lead Anywhere.  | business.gmu.edu Global Trading System dumping: when countries sell products in markets abroad at unfairly low prices. countries impose countervailing duties in this situation, and it is allowed by the WTO Dispute Settlement in the WTO Dumping and the WTO Subsidies and the WTO Doha Round of Negotiations WTO and the Environment Learn Here. Lead Anywhere. Thank You. Learn Here. Lead Anywhere.