978-1259578113 Chapter 7 Solutions Manual

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OPENING CASE: U.S. Tariffs on Chinese Solar Panels Benefit Malaysia

The opening case explores the decision by the United States and the European Union to levy

tariffs on solar panels imported from China. The decision stemmed from the fact that the Chinese

solar panel industry benefitted from government subsidies that made it nearly impossible for

U.S. and EU manufacturers to compete. The tariffs, however, did not result in increased solar

panel production in the United States or Europe. Instead, much of global solar panel production

(including production by a number of U.S. and EU manufacturers) moved to Malaysia, which

offers significant tax breaks to foreign investors. Discussion of the case can revolve around the

following questions:

1. Regardless of its effect on domestic employment, do you agree with the decision by the United

States and European Union to impose tariffs on Chinese solar panels?

2. Discuss the response by U.S. and EU manufacturers to the sanctions on Chinese solar panels.

What are the ethical and economic implications of the decision to open manufacturing facilities

in Malaysia?

3. What other strategies might the United States and EU use to stimulate their domestic solar

panel industries and eliminate the incentive to outsource production to other countries?

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: Do you think that governments should consider human rights when granting

preferential trading rights to countries? What are the arguments for and against taking such a

position?

QUESTION 2: Whose interests should be the paramount concern of government trade policy—

the interests of producers (businesses and their employees) or those of consumers?

QUESTION 3: Given the arguments relating to the new trade theory and strategic trade policy,

what kind of trade policy should business be pressuring government to adopt?

QUESTION 4: You are an employee of an U.S. firm that produces personal computers in

Thailand and then exports them to the United States and other countries for sale. The personal

computers were originally produced in Thailand to take advantage of relatively low labor costs

and a skilled workforce. Other possible locations considered at that time were Malaysia and

Hong Kong. The U.S. government decides to impose punitive 100% ad valorem tariffs on

imports of computers from Thailand to punish the country for administrative trade barriers that

restrict U.S. exports to Thailand. How do you think your firm should respond? What does this

tell you about the use of targeted trade barriers?

ANSWER 4: As long as the manufacturing requirements have not changed significantly, looking

at Malaysia or Hong Kong again for production would appear obvious. When the U.S.

government introduces a specific ad valorem tariff on Thai computer imports, it forces

QUESTION 5: Reread the Management Focus, “Protecting U.S. Magnesium.” Who gains most

from the antidumping duties levied by the United States on imports of magnesium from China

and Russia? Who are the losers? Are these duties in the best national interests of the United

States?

ANSWER 5: Many students will probably argue that the only clear winners from the

antidumping duties imposed by the United States on magnesium imports from China and Russia

CLOSING CASE: Sugar Subsidies Drive Candy Makers Abroad

Summary

The closing case explores the impact of U.S. subsidies to domestic sugar producers. The support

program has been in place since the 1930s, and it is estimated to protect approximately 4,700

jobs. U.S. sugar prices, however, are nearly twice as high as in other parts of the world, and food

and candy manufacturers often have no choice but to locate their production facilities in other

countries in order to compete in the global market. Economists predict that eliminating the sugar

subsidies would create as many as 20,000 jobs in the United States, but all attempts at ending the

program so far have failed. Discussion of this case can revolve around the following questions:

QUESTION 1: Who benefits from subsidies to U.S. sugar producers? Who loses?

ANSWER 1: Sugar producers are the clear beneficiaries of the U.S. sugar subsidies. They are

protected from international competition and guaranteed a certain price for their goods regardless

QUESTION 2: Do the benefits of U.S. government support to the U.S. sugar industry outweigh

the losses?

ANSWER 2: Statistics indicate that the costs of the sugar support program far outweigh the

benefits. U.S. consumers pay almost twice as much for sugar as do consumers in countries

QUESTION 3: What do you think would happen if the U.S. government removed all support for

U.S. sugar producers?

ANSWER 3: The U.S. sugar industry would certainly suffer losses, as it would be unable to

compete with exports from countries that are more suited for sugar production. Food prices,

QUESTION 4: Government support programs for sugar producers were introduced in the 1930s,

yet they are still in place today, long after the original rationale disappeared. What does this tell

you about political decisions relating to international trade?

ANSWER 4: The U.S. government still maintains some protectionist tendencies despite its

QUESTION 5: If you had the power to make changes here, what would you do, and why?

ANSWER 5: Student answers will vary depending on their position on international trade. Some

may want to see expanded protection of domestic industries in order to support production and

MHE INTERNATIONAL BUSINESS VIDEO LIBRARY

Please click here to visit our International Business Video Library on Pinterest, which is updated

on a monthly basis. While there, be sure to “like” the clips that work well for you, and add notes

that might be helpful to your colleagues.

INCORPORATING globalEDGE™ EXERCISES

Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:

Exercise 1

You work for a pharmaceuticals company that hopes to provide products and services in New

Zealand. Yet management’s current knowledge of this country’s trade policies and barriers is

limited. After searching a resource that summarizes the import and export regulation, outline the

most important foreign trade barriers your firm’s managers must keep in mind while developing

a strategy for entry into New Zealand’s pharmaceutical market.

Exercise 2

The number of member nations of the World Trade Organization (WTO) has increased

considerably in recent years. In addition, some nonmember countries have observer status in the

WTO. Such status requires accession negotiations to begin within five years of attaining this

preliminary position. Visit WTO’s website to identify a list of current members and observers.

Identify the last five countries that joined the WTO as members. Also, examine the list of current

observer countries. Do you notice anything in particular about the countries that have recently

joined or have observer status?

Answers to Exercise Questions

Exercise 1

The database can be accessed by searching the term “Market Access Database” at

Exercise 2

The World Trade Organization’s website can be accessed by searching the term “global

international organization” at http://globaledge.msu.edu/ResourceDesk/. The link to the WTO