China reduced its tariffs since joining the wto in

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China reduced its tariffs since joining the WTO in 2001. Firms bypass tariffs by entering countries via FDI. E.g., Toyota built factories in the U.S. partly to avoid tariffs. International Business: The New Realities 8-15
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Subsidies Subsidies are government grants (monetary or other resources) to firm(s), intended to ensure their survival or success by facilitating production at reduced prices, or encouraging exports. Grants include cash, tax breaks, infrastructure construction, or government contracts at inflated prices. International Business: The New Realities 8-16
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Subsidies (cont’d) Subsidies are government grants (monetary or other resources) to firm(s), intended to ensure their survival or success by facilitating production at reduced prices, or encouraging exports. Grants include cash, tax breaks, infrastructure construction, or government contracts at inflated prices. 8-17 Examples In China, Shanghai Automotive ($12b ann. sales) and numerous other MNEs are partly owned by the Chinese government, and receive huge financial resources. Europe and the U.S. provide huge agricultural subsidies to farmers. EU subsidies represent 40% of the EU budget.
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Economic Freedom Economic freedom is the absence of government coercion so that people can work, produce, consume, and invest however they want to. The Index of Economic Freedom assesses the rule of law, trade barriers, regulations, and other criteria. Virtually all advanced economies are ‘free’ Emerging markets are either ‘free’ or ‘mostly free’ Most developing economies are ‘mostly unfree’ or ‘repressed’ Economic freedom flourishes with appropriate of intervention; too much regulation harms the economy International Business: The New Realities 8-18
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Evolution of Government Intervention Protectionist tendencies, the Great Depression, and isolationism shaped early 20th century world trade. The Smoot-Hawley Act (1938) raised U.S. tariffs to more than 50% (compared to only 3% today). Progressive trade policies reduced tariffs after WWII. In 1947, 23 nations signed the General Agreement on Tariffs and Trade (GATT). The GATT: reduced tariffs via continuous worldwide trade negotiations; created an agency to supervise world trade; and created a forum for resolving trade disputes. International Business: The New Realities 8-19
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The GATT (cont’) The GATT introduced the concept of most favored nation (renamed normal trade relations ), according to which each member nation agreed to extend the tariff reductions covered in a trade agreement with one country to all other countries. A concession to one became a concession to all.
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