INTB3080: Exam 2 Study Guide
INTB3080: Exam 2 Study Guide INTB3080
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This 3 page Study Guide was uploaded by Madison Morman on Monday March 7, 2016. The Study Guide belongs to INTB3080 at University of Cincinnati taught by Dr. Ratee Apana in Spring 2016. Since its upload, it has received 169 views. For similar materials see Global Environment of Business in International Business at University of Cincinnati.
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Date Created: 03/07/16
Global Environment Chapters 7 & 8 Study Guide Chapter 7: The Political Economy of International Trade INSTRUMENTS OF TRADE POLICY (important know all of them) 1. Tariffs: Oldest form of protection that generates revenue, protects domestic producers, BUT reduce efficiency and increase cost of goods a. Specific Tariffs: Levied as a fixed charge per unit b. Ad valorem: Levied as a proportion of the value of the imported goods 2. Subsidies : Government payment to a domestic producer (cash grants, low -interest loans, tax breaks. a. Subsidy revenues are generated from taxes b. Encourage over-‐production, inefficiency and reduced trade c. Agriculture subsidies: Keeps inefficient farmers in business, encourages production of subsidized product, produces products grown cheaper, reduces agriculture trade 3. Import Quotas: Restriction on the quantity of some good imported into a country 4. Voluntary Export Restraints (VER): Quota on trade imposed by exporting country from importing country Country Focus: Subsidized Wheat Production in Japan (Important) • Japan is not a good environment to grow wheat with low yields and high cost • Govt. gives subsidies to keep inefficient Japanese wheat producers in business • Japanese consumers forced to pay higher prices for wheat from restricted supply Local Content Requirements: Requires some specific fraction of goods to be produced domestically • Used by developing countries to shift from assembly to production of goods Administrative Polices: Rules designed to make it difficult for imports to enter a country (France) Antidumping Policies: Designed to punish foreign firms that engage in dumping -Selling goods in a foreign market below production costs and fair market value -Agencies involved: Commerce Department and the International Trade Commission. Political Arguments for govt. intervention • Protecting jobs/industries • National Security (defense) • Retaliation (punitive sanctions) • Protecting customers/hormones in meet • Furthering foreign policy (helms-burton/D’Amato Act) • Protecting Human Rights Economic Arguments for Intervention 2 [Type text] • Infant industry- New manufacturers can’t initially compete with established industries • Strategic trade policy- govt. can help raise national income Country Focus: Trade in Hormone-Treated Beef (which countries? How was this resolved? • EU put a ban on hormone treated beef and was pressed to lift for no scientific evidence • EU accepted punitive sanctions instead of lifting the ban Helms Burton Act: Allowed Americans to sue foreign firms that use property in Cuba stolen from them D'Amato Act – Similar to Helm Burton Act but between Iran and Libya DEVELOPMENT OF THE WORLD TRADING SYSTEM The Uruguay Round: Member countries wanted the GATT rules to cover trade in services, protection of intellectual property, reduce agricultural subsidies, and create WTO to implement this agreement. TRIPS: Closing gaps between the way intellectual property rights are protected around the world GATS: Extends free trade agreements to services Chapter 8: Foreign Direct Investment FDI: Occurs when a firm invests directly in facilities to produce/market a product in a foreign country Trends in FDI: Flow & stock increase while growth is more rapid than world trade The Form of FDI: Acquisitions: mostly in developing nations, takes a long time Greenfield Investments: Have to set it up from the ground up Why Foreign Direct Investment: Firms want a presence and control of growth in foreign markets • Want First-Mover advantage to scare off competitors Management Focus: Foreign Direct Investment by CEMEX (important) Invests directly in other countries rather than exporting because: • Big demand in developing countries for cement • Cemex believed it understood the needs of construction businesses in developing nations better than multinationals • Believed they could create big value by acquiring inefficient cement companies in other markets and transferring its skills in customer service, marketing, IT, and production management to those units. BENEFITS AND COSTS OF FDI Host Country Benefits 1. Resource transfer effect- Gives capital, technology, and management to country 2. Employment effect- Brings jobs to host country that otherwise wouldn’t be there 3. Balance of Payments effect- Tracks payments and receipts from other countries Global Environment Chapters 7 & 8 Study Guide Host Country Costs 1. Adverse effects on Competition- worry that MNE’s will have power over indigenous competitors 2. Adverse effects on balance of payment- Importing many inputs from abroad/outflow of earnings 3. National Sovereignty and autonomy- FDI is accompanied by some loss of economic freedom Home Country Benefits 1. Balance of Payments- Inward flow of foreign earnings 2. Employment Effects- Foreign subsidiary creates demand for home-country exports 3. Reverse Resource Transfer Effect- Home country MNE learns skills from foreign market Home Country Costs 1. Balance of Payments- Cost of financing FDI, production from low-cost location, & no direct exports 2. Employment Effects- When FDI is a substitute for domestic production (loss in jobs) International Trade Theory: FDI may stimulate an economy, freeing home-country resources to concentrate on activities where they have the comparative advantage. Current account: Tracks the export and import of goods and services. Capital accounts: Net result of public and private international investments flowing in and out of a country. Forms of FDI Horizontal : FDI in same industry abroad as company operates at home Vertical Direct Investment • Backward: Investments into industry that provides inputs into a firm’s domestic production (extractive industries) • Forward: Investment in an industry that utilizes the outputs from a firm’s domestic production (sales and distribution Wal-Mart in Japan (important) • Lack of FDI in Japan from govt. regulations for companies to establish presence in the nation • Slow economic growth, sluggish consumer spending makes for a less attractive investment • When govt. decided it needed more FDI, Walmart bought a big Japanese retailer, but eventually had to lay off 1,500 employees
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