Chapter 06 – Government Intervention Government Intervention Learning objectives • Identify the policy instruments used by governments to influence international trade flows. • Understand why governments sometimes intervene in international trade. • Summarize and explain the arguments against strategic trade policy. • Describe the development of the world trading system and the current trade issue. • Explain the implications for managers of developments in the world trading system. This chapter focuses on the political systems and tools of trade policy. The major objective of this chapter is to describe how political realities shape the international trading system. With an introduction to tariffs, subsidies, and the development of the world trading system, the chapter describes the evolution of the World Trade Organization and its impact on the global business environment. While in theory many countries adhere to the free trade ideal, in practice most have been reluctant to engage in unrestricted free trade. The United States continues to restrict trade in technological and militarily sensitive products as well as in textiles, sugar, and other basic products in response to domestic political pressures. The opening case explores the subsidies paid to aircraft makers Boeing and Airbus. Both firms have accused the other of unfair competition. The World Trade Organization has ruled that both organizations have been guilty of receiving government subsidies and implemented punitive measures. The closing case explores allegations of dumping by Chinese steel makers. In response to complaints by domestic steel companies, the U.S. Commerce Department implemented hefty punitive tariffs on steel imports from China, India, Italy, South Korea, and Taiwan.
Chapter 06 – Government Intervention Summary The opening case explores the ongoing battle between aircraft makers Airbus and Boeing. Both companies have accused the other of receiving unfair government subsidies designed to give them a competitive advantage, and both the United States and the European Union have taken their complaints to the World Trade Organization (WTO). In response to a 2006 complaint from the United States regarding perceived assistance to Airbus, the WTO issued a ruling indicating that the Europe-based Airbus had indeed received unfair subsidies. After Airbus failed to comply with WTO orders to remove the subsidies, the WTO issued another warning to Airbus. Ironically, the United States is unlikely to pursue Europe’s noncompliance with the WTO rulings as Boeing recently found itself under fire for accepting tax breaks from the state of Washington. Discussion of the case can begin with the following questions: Free trade refers to a situation in which a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country.
- Fall '08
- International Trade