GOVERNMENTAL INFLUENCE ON TRADE

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GOVERNMENTAL INFLUENCE ON TRADE
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• Case United States Japanese Auto Trade

• Imports started in 1973
• VERs ceiling 1.68 million cars
• Arguments for helping the U.S. industry
• - The costs of unemployment are higher than the
  increased costs to consumers
• - Help overcome temporary problems
• Antiprotectionists blame poor management and
  taxpayers should not be expected to reward the
  companies
• Efforts to penetrate the Japanese market

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• I - Introduction

• In a world without trade barriers, trade patterns
  will be determined by the relative productivity
  of different factors of production in different
  countries.
• Countries will specialize in the production of
  products that they can produce most efficiently,
  while importing products that they can produce
  less efficiently
• All countries seek to influence trade and each
  has
• - economic, social, and political objectives
• - Interest groups

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• II - THE RATIONALE FOR GOVERNMENTAL INTERVENTION

A - Unemployment

• Import restrictions may lead to retaliation by
  other countries, may decrease export jobs
• Loss of jobs in industries that rely on imported
  Products
• Cost of protectionism higher prices, low
  quality, lack of Innovation

B - Infant Industry Argument

• Production becomes more competitive over time
  because of increased economies of scale and
  greater workers efficiency

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C - Industrialization Argument
Countries seek protection to promote
industrialization Because a) brings faster
growth than agriculture b) diversifies the
economy c) brings more price increases than
primary products do.
D - Shifting Workers from Agriculture into
Manufacturing

• a) output increases if the marginal productivity
  of agricultural workers is very low.
• b) Social concerns

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E - Promoting Investment Inflows
Import restrictions increase direct investment
F - Diversification
G - Terms of Trade (Px/Pm)
Deterioration of terms of trade may prompt
countries to protect and promote industrialization
H - Import Substitution versus Export Promotion
Export-Led Development
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I - Balance-of-Payments Adjustments
Countries may choose to restrict the least
essential Imports Export restrictions Import
Restrictions may prevent dumping
J - Maintaining Essential Industries
K - Preserving Cultures and National Identity
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III - FORMS OF TRADE CONTROL
A - Tariff
A tariff may be assessed on a per unit basis, in
which case it is known as a specific duty. It
may also be assessed as a percentage of the value
of the item, in which case it is known as an ad
valorem duty. If both a specific duty and ad
valorem duty are charged on the same product ,
the combination is known as a compound duty.
Tariff controversy affects exports of LDCs,
and who bears the brunt of paying tariff costs
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B - Nontariff Barriers Direct Price Influences
Subsidies may help companies be
competitive Customs Valuation Quotas Buy
Local Legislation Standards Administrative
Delays and Procedures Countertrade
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IV - From GATT to WTO
GATT, 1947 with 23 members and grew to more than
100 Members Uruguay Round agreement to
replace the GATT with the World Trade
organization (WTO) Most-Favored-Nation
Clause this clause requires that if a country
grants a tariff reduction to one country it must
grant the same concessions to all other
countries.
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V - GATT Sponsored Rounds
These rounds led to a number of multilateral
reduction in tariffs and nontariff barriers for
its members. Uruguay Round Settlement of
Disputes
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V - International Business Strategy in the
Internationalization Process