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Chapter 06 - Political and Trade Forces
XI. End of Chapter Questions
1. Why might governments nationalize firms, and why might a government-owned firm have an
unfair advantage over privately owned companies?
Governments put their hands on firms for a number of reasons. Some of these reasons are (1) to
extract more money from the firms, if the government suspects that the firms are concealing profits;
(2) profitability—the government believes it can run the firms more efficiently and make more money;
2. What options does a company have for helping to prevent terrorism or to better manage
terrorist actions if they occur?
Companies or their executives can purchase insurance to cover ransom payments, attend
antiterrorist schools, and hire companies to handle negotiations with kidnappers. The insurance, which
is called KRE (kidnap, ransom, and extortion), can pay for the ransom, the fees of specialist
3. Why might business fear sudden changes in government policies?
Business is regulated by governments of all countries where it is not owned by government.
4. How can ICs use their strengths to influence government policies?
International companies are not without political clout. When considering investments in a country
5. Is country risk assessment an exact science? Explain.
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Chapter 06 - Political and Trade Forces
6. It seems that free, unrestricted international trade, in which each nation produces and
exports products for which it has a comparative advantage, will enable everyone to have a higher
level of living. Why, then, does every country have import duty restrictions?
Trade restrictions are imposed at the request of special interest groups, not the public. These
groups may include labor unions and local communities fighting to keep a plant open to avoid losing
7. “We certainly need defense industries, and we must protect them from import competition
by placing restrictions on competitive imports.” True or false? Is there an alternative to trade
restrictions that might make more economic sense?
Unfortunately, we live in a world where military preparedness is necessary, but the problem is
8. It seems entirely reasonable for a government to undertake efforts to protect a new or recently
established – often called “infant” – industry. Why, then, might international trade professionals
argue against governmental efforts to protect a new or recently established industry?
It is difficult to identify whether an industry can be economically viable over the long term, even
if protection is offered to it, raising the prospect that many sectors could receive assistance even
9. According to the WTO, what is dumping? Why would a government be opposed to having
their citizens or businesses be able to obtain products at lower costs?
The WTO defines dumping as selling a product abroad for less than (1) the average cost of
production in the exporting nation, (2) the market price in the exporting nation, or (3) the price to third
10. “Workers are paid $20 an hour in the United States but only $4 in Taiwan. Of course we
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Chapter 06 - Political and Trade Forces
can’t compete. We need to protect our jobs from cheap foreign labor.” What are some possible
problems with this statement?
Wage costs are only a fraction of labor costs, costs that are only part of the overall cost of
11. There are two general classifications of import duties: tariff and nontariff barriers.
a. Describe the various types of tariff barriers.
b. What are some of the nontariff barriers?
(a.) A tariff is a tax on imports. Examples of tariff barriers include: ad valorem, specific and
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