Business Government Trade Relations

Question 1

Trade Intervention

Answer 1

• Political Motives
• -Protect Jobs
• -Preserve National Security
• -Respond to Unfair Trade
• -Gain Influence
• Economic Motives
• -Protect infant industries
• -Pursue strategic trade policy
• Cultural Motives

Question 2

Political Motive: Protect Jobs

Answer 2

-Developed countries cannot compete with low wage nations in labour intensive industries, thus government intervenes to protect domestic jobs against cheap foreign imports

Question 3

Political Motive: Preserve National Security

Answer 3

• A country must be self sufficient in critical raw materials, machinery and technology or else it’d be vulnerable to foreign threats.
• Often used to protect essential domestic industry during peace time.

Question 4

Political Motive: Respond to unfair trade

Answer 4

If other nations protect their own industries by creating barriers, the affected nation may import retaliatory measures unless concessions are made.

Question 5

Political Motive: Gain influence

Answer 5

Larger nations may use trade embargoes in order to gain influence over smaller nations

Question 6

Economic Motive: Protect infant industry

Answer 6

• Protect emergency industry during development from global competition
• Potential results:
• -National Income +
• -Wrong Industries protected
• Firms grow complacent
• Consumer prices rice
• Public Funds Poorly Spent

Question 7

Economic Motive: Protect infant industry (2)

Answer 7

-An “infant industry” is a new industry that lacks economics of scale and market share. It cannot survive in a freely competitive market. Government protects it temporarily from foreign competition until it can fully establish itself.

Question 8

Economic Motive: Pursue strategic trade policy

Answer 8

• Global Industry Created (firms efficiency reduced, domestic costs increased and special interests benefit)
• Government policy which attempts to shift excess profits in an international oligopolistic markets towards the home country firms.
• Subsidies, grants, loans at lower than market interest rates to promise to purchase a large volume of production

Question 9

Cultural Motive

Answer 9

Block imports that are deemed harmful to protect national identity

Question 10

Trade Promotion Method: Subsidies

Answer 10

• Financial assistance in form of cash, tax breaks, price supports
• Potential Results
• Increased competitiveness +
• Encourage inefficient firms
• Increased consumer prices
• Overuse of resources

Question 11

Trade Promotion Method: Export Financing

Answer 11

-Financial assistance in form of low interest loans

Question 12

Trade Promotion Method: Foreign Trade Zones

Answer 12

• Designated geographic region in which merchandise is allowed to pass through lower custom duties and/or fewer customs procedures
• To increase employment and trade within nation

Question 13

Trade Promotion Method: Special Government Agencies

Answer 13

• Organize trade missions for officials and businesses
• Operate export-promotion offices at locations abroad
• Help import products the home nation does not produce

Question 14

Trade Restriction Method: Tariff

Answer 14

-Government tax levied on a product as it enters or leaves a nation
Potential Results:
-Protects domestic firm from competitors +
-Generate income for the government +
-Reduce competitiveness of home-based firms
-Raise consumer prices

Question 15

Trade Restriction Method: Tariff Types

Answer 15

• Ad Valorem tariff - % of market value of goods
• Fixed tariff - specific dollar amount per unit
• Compound tariff - Both ad valorem and fixed
• Alternate tariff - Ad valorem and fixed and instruction

Question 16

Trade Restriction Method: Import and Export Quota

Answer 16

-Restriction on the amount of good that can enter or leave a country during a certain period of time

Question 17

Trade Restriction Method: Import Quota

Answer 17

• Protect domestic producers of a good

- Force outside firms to compete for market access

Question 18

Trade Restriction Method: Export Quota

Answer 18

• Retain adequate domestic supply of a product

- Restrict world supply of a product to raise its price

Question 19

Trade Restriction Method: Embargoes

Answer 19

• Complete ban on trade
• To achieve political goals
• Difficult to enforce

Question 20

Trade Restriction Method: Local Content Requirements

Answer 20

• Laws that require domestic producers to supply a specific amount of a good or service
• Forces international companies to employ local resources in production process

Question 21

Trade Restriction Method: Administrative Delay

Answer 21

• Regulatory controls or bureaucratic rules to slow down imports into a country
• -Inconvenient ports for import
• -Product damaging inspections
• -Understaffed custom offices
• -Lengthy licensing procedures

Question 22

Trade Restriction Method: Currency Restrictions

Answer 22

• Limit the amount of globally accepted currency to pay for import or exports
• Set unfavourable exchange rate when paying for imports
• Ban the use of foreign currency within the country