CH 08 Slides Short Version

Helps ensure the safety security and welfare of

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Helps ensure the safety, security, and welfare of citizens . E.g., most countries have basic regulations to protect the national food supply. Helps the government pursue broad economic, political, and social objectives for the nation. Can serve the interests of the nation’s firms and industries. International Business: The New Realities 8-8
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Defensive Rationale for Government Intervention Protection of the national economy – weak or young economies sometimes need protection from foreign competitors. E.g., India imposed barriers to shield its huge agricultural sector, which employs millions. Protection of an infant industry – a young industry may need protection, to give it a chance to grow and succeed. E.g., Japan long protected its car industry. National security – the United States prohibits exports of plutonium and similar products to North Korea. National culture and identity Canada restricts foreign investment in its movie and TV industries International Business: The New Realities 8-9
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Offensive Rationale for Government Intervention National strategic priorities – protection helps ensure the development of industries that bolster the nation’s economy. Countries create better jobs and higher tax revenues when they support high value-adding industries, such as IT, automotive, pharmaceuticals, or financial services. Increase employment – protection helps preserve domestic jobs, at least in the short term. However, protected industries become less competitive over time, especially in global markets, leading to job loss in the long run. International Business: The New Realities 8-10
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Types and Effects of Government Intervention
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Government Intervention Types and Effects (cont’d)
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Government Intervention Types and Effects (cont’d)
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Tariffs are Widespread Harmonized code – standardized worldwide system that determines tariff amount. In developing economies, tariffs are common. In advanced economies, tariffs still provide significant revenue. For example, in a given year the U.S. collects more tariff revenue on shoes than on cars (e.g., $1.63 billion versus $1.60 billion). The European Union applies tariffs up to 215% on meat, 116% on cereals, and 17% on tennis shoes. International Business: The New Realities 8-14
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Import Tariffs Have Been Declining Governments have reduced tariffs over time, mainly via the General Agreement on Tariffs and Trade (GATT), which became the World Trade Organization (WTO). Economic integration also leads to lower tariffs, but only within economic blocs. E.g., under NAFTA, Mexico eliminated nearly all tariffs on imports from the U.S., but maintains tariffs with the rest of the world.
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