Lecture 6 - Lecture 6 The Political Economy of...

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1 Lecture 6 The Political Economy of International Trade
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2 Outline A. Introduction B. Instruments of Trade Policy C. Political Arguments for Intervention D. Economic Arguments for Intervention E. Managerial Implications
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3 A. Introduction Governments manage trade through several methods such as: the protectionist intervention to restrict imports promotion of exports foreign direct investment (FDI) incentives Whether free-trade is “Good” or “Bad”? Examine the implications for business and individual groups
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4 B. Instruments of Trade Policy There are many instruments of trade policy including: Tariffs Subsidies Quotas Voluntary export restraints Local content requirements Administrative policies Anti-dumping policies
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5 Tariffs Specific tariff A fixed charge for each unit of a good imported Ad valorem tariff A proportion of the value of the imported good Generates revenue for government Protects domestic producers ( ↑ the cost of foreign goods) Reduces efficiency Bad for consumers ( ↑ the price of the goods) E.g. 8-10% tariff imposed by the US government on the imports of  steel (stared in 2002, ended in 2003). Affected parties: steel industry, steel-consuming industry, final consumers. (Global business Today: P.194)
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6 Subsidies Subsidy is the government payment to a domestic producer Example: cash grants, low-interest loans, tax breaks and government equity participation in the company Advantages Disadvantages Helps domestic producers against low-cost foreign imports May not be successful in increasing domestic producers’ international competitiveness Gains export market for domestic producers May encourage over-production and inefficiency for domestic producers E.g., :Japanese farmers were selling wheat at a market price of $9/bushel,  while receiving a subsidy of $35/bushel (Global Business Today p.196).
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7 Quotas
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This note was uploaded on 11/02/2009 for the course FB AF2602 taught by Professor Aliceshiu during the Winter '08 term at Polytechnic University of Puerto Rico.

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Lecture 6 - Lecture 6 The Political Economy of...

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