Chapter 7 Government Intervention in International Business
1. In a short essay, describe two methods of government intervention. What is the purpose of government intervention in international business?
Government intervention is often manifested as protectionism. Protectionism refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition. Protectionism often leads to two types of intervention: tariffs and nontariff barriers. A tariff is a tax imposed by government on imported products, effectively increasing cost of acquisition for the customer. A nontariff trade barrier, such as a ...view middle of the document...
For example, governments may pass laws to ensure a safe food supply and prevent sales of products that threaten public safety. Third, intervention can help a government pursue broad-based economic, political, or social objectives. For example, a government may enact policies that aim to increase national employment or promote economic growth. Fourth, intervention can help better serve the interests of the nation’s firms and industries. For example, a government may devise regulations to stimulate development of home-grown industries.
(p. 196; concept; Learning Objective 2; moderate; AACSB: Analytic Skills)
3. What are the four major defensive motives for government intervention? In a short essay, provide a brief explanation of each motive.
a. Protecting the National Economy — Proponents argue that firms in advanced economies cannot compete with those in developing countries that employ low-cost labor. Activists also call for trade barriers to curtail imports of cheap products, fearing that advanced economy manufacturers will be undersold, wages will fall, and home-country jobs will be lost. Therefore, the argument goes, governments should impose trade barriers to block imports.
b. Protecting Infant Industries—In an emerging industry, companies are often inexperienced and lack knowledge of the latest technologies. They may also lack the scale typical of larger competitors in established industries abroad. Therefore, an infant industry may need temporary protection from foreign competitors. Accordingly, governments can impose trade barriers on foreign imports, ensuring young firms a large share of the domestic market until they are strong enough to compete on their own. Protecting infant industries has allowed some countries to develop a modern industrial sector.
c. Protecting National Security—Countries impose trade restrictions on products viewed as critical to national defense and security, such as military technology and computers. Trade barriers can help maintain domestic productive capacity in security-related products, such as computers, weaponry, and certain transportation equipment.
d. Protecting National Culture and Identity—Countries impose trade restrictions on products viewed as critical to national defense and security, such as military technology and computers. Trade barriers can help maintain domestic productive capacity in security-related products, such as computers, weaponry, and certain transportation equipment.
(pp. 197-198; concept; Learning Objective 2; moderate; AACSB: Analytic Skills)
4. In a short essay describe the two offensive rationales for government intervention, that is, (i) establishing national strategic priorities and (ii) increasing employment.
The first offensive strategy involves establishing national strategic priorities. Government intervention sometimes aims to encourage the development of industries that bolster the nation’s economy. Countries with...