Trade barriers in International Business

Trade Barriers: Governmental Influence on Trade

Presented By:

Jatin Vaid

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1International Business - Jatin Vaid

Protectionism

• Company’s performance, ability to compete and survival depends on government’s trade policies.

• Policies may limit or enhance the ability to sell abroad.

• Restrictions (Tariffs, etc.) or Competitive support (subsidies, etc.)


Reasons for governmental intervention

• Preventing Unemployment

• Protecting Infant Industries

• Promoting Industrialization

• Improving Comparative Position

Economic Reasons

• Maintaining Essential industries

• Dealing with unfriendly countries

• Maintaining Control

• Preserving National Identity

Non – Economic Reasons


1. ECONOMIC REASONS

Reasons for Government’s Intervention

International Business - Jatin Vaid 4

1.1 Preventing Unemployment

• Economic employment of full employment

• Gaining jobs by limiting imports

• Other countries may retaliate

• Impact on other industries


1.2 Protecting Infant Industries

• Government should shield an emerging industry from foreign competition by guaranteeing it a large share of domestic market until it is ready to compete.

• Efficiency gains take time • Economies of scale & experience curve translate

into higher productivity• Benefits include higher employment, lower social

costs and higher tax revenues


1.3 Promoting Industrialization

• Higher manufacturing base leads to higher per capita income

• Restricting imports leads to developing an industrial base

• Increase FDI

• Export – led development for local consumption

• Nation building: Build infrastructure, rural development, skill building


1.4 Improving Comparative Position

• Nation’s absolute economic welfare compared with other nations

• Balance of trade adjustments

• Gaining access to foreign markets

• Restrictions as bargaining tool

• Controlling prices


2. NON – ECONOMIC REASONS

Reasons for Government’s Intervention


2. Non – Economic Reasons

2.1 Maintaining essential industries:

• Protect essential domestic industries

• Financial inclusion of necessities

• Rural penetration at affordable prices

• Maintaining competitive advantages in essential industries.

• Water, electricity, banking, railways, etc.


2.2 Dealing with unfriendly countries

• National defense

• Trade of strategic goods – data encryption technology, arms & ammunitions, banking, etc.

• Used as a method to achieve political objectives


2.3 Maintaining Control

• Governments give aid to and encourage imports from countries that join a political alliance or vote in a preferred way within international bodies.

• Political motives


2.4 Preserving national identity

• Unifying sense of identity to be sustained

• National culture to be protected

• Defining boundaries for trade


Instruments of Trade Control

• Import tariffs

• Export Tariffs

• Transit Tariffs

Tariff Barriers

• Subsidies

• Tied Aids

• Minimum Sale Price

• Quotas

• Embargoes

• Buy – Local Legislation

• Specific Permissions Required

Non – Tariff Barriers


Tariff Barriers

• Directly affect the prices of goods traded

• Also called Duty or tax levied on goods traded internationally.

• Most common type of trade control

• Specific duty; Ad – Valorem duty; Compound duty.


Types of tariffs

i. Import tariffs: Collected by importing country

ii. Export tariffs: Collected by exporting country

iii. Transit tariffs: Collected by the country through which the goods have passed.


Non Tariff Barriers

• May directly affect either price or quantity of goods traded internationally.


Types of Non – Tariff Barriers

i. Subsidies: Direct assistance to companies, making them more competitive.

ii. Tied Aids: Loans to other countries, a part of which is spend in donor country. E.g. Infrastructure, telecommunication.

iii. Minimum sale price: Goods sold at a price set by authorities after clearances.


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iv. Quotas: Limiting the quantity of goods imported or exported at a given time frame.

v. Embargoes: Prohibits all forms of trade from a country or a category of goods.

vi. Buy – Local: Favoring domestic producers or goods of local origin.

vii. Specific Permissions: import or export license.


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Trade barriers in International Business

Leadership & Management

Transcript of Trade barriers in International Business