978-1259929441 Chapter 7 Part 2

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Chapter 07 – Government Policy and International Trade

7-9

• the protection of intellectual property rights

• the reduction of agricultural subsidies

• the strengthening of GATT’s monitoring and enforcement mechanisms

The Future of the WTO: Unresolved Issues and the Doha Round

doors. They took advantage of the Seattle meetings to voice their opposition.

The Doha Round had several initiatives:

Market Access for Nonagricultural Goods and Services. Most developed nations have

brought their tariffs on industrial products to an average of 3.8 percent of value, but much

remains to be done. The WTO goal is to eventually reduce tariffs to zero.

foreign goods that are being sold cheaper than at home, or below their cost of production,

when domestic producers can show that they are being harmed.

Protection of Intellectual Property. WTO on intellectual property should allow for health

protection in poorer nations. Rich countries have to comply with the rules within a year.

Poor countries, in which such protection generally was much weaker, have five years’

Trans Pacific Partnership or TPP is in grave danger of being derailed by President Donald

Trump.

Many see the 70-year-long global movement toward free trade and low trade barriers

under threat. The decision by Great Britain to withdraw from the European Union

together with the election of isolationist-minded Donald Trump suggest a new hostility

Chapter 07 – Government Policy and International Trade

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Trade barriers are a constraint upon a firm’s ability to disperse its productive activities.

International firms have an incentive to lobby for free trade, and keep protectionist

pressures from causing them to have to change strategy.

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?

ANSWER 1: China is frequently cited as a violator of human rights, and can form the

basis for a discussion of this question. While the answer to the first question clearly is a

matter of personal opinion, in stating their opinions, students should consider the

following points. Trade with the U.S. is very important to China, as China views the U.S.

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?

ANSWER 2: The long-run interests of consumers should be the primary concern of

governments, based on a utilitarian approach (the most good). Unfortunately, consumers

each of whom may be negatively impacted by only a few dollars are less motivated and

effective lobbyists than are a few producers who may have a great deal at stake. While in

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?

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ANSWER 3: According to the textbook, businesses should urge governments to target

technologies that may be important in the future and use subsidies to support

development work aimed at commercializing those technologies. Government should

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

percent 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

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 are the employees and investors of U.S. Magnesium. Some students may suggest

that the duties will also open the door to magnesium producers in other countries that

Chapter 07 – Government Policy and International Trade

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McGraw-Hill Education.

United States is simply seeking a more equitable trading relationship with China and

Russia.

CLOSING CASE: Is China Dumping Excess Steel Production?

Summary

The closing case explores allegations of dumping by Chinese steel producers. Both the

United States and the European Union have accused China of illegally dumping steel in

their markets, and both the United States and the European Union have implemented

what they claim are appropriate retaliatory tariffs, despite a lack of a WTO ruling on the

controversy. China currently produces about half the world’s output of steel and about

300 million more tons than it can consume. Discussion of this case can begin with the

following questions:

QUESTION 1: Does the evidence suggest to you that China is dumping excess steel

production on world markets?

ANSWER 1: Most students will probably suggest that it is likely that China is indeed

dumping excess steel production on world markets. Estimates indicate that China is

QUESTION 2: Absent of any response from other nations, how long can China pursue

this policy?

ANSWER 2: Many students will probably suggest that the window for China to dump its

unwanted steel in the United States and other countries is probably drawing to a close.

QUESTION 3: Who is harmed by this action? Who might benefit?

ANSWER 3: Many students will probably suggest that given the reactions by the United

goods hurting both consumers and manufacturing companies.

QUESTION 4: What alternative policy might China pursue? What are the costs and

benefits of this alternative policy to China?

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ANSWER 4: China’s steel industry provides about half the world’s annual output.

However, analysts suggest that since 2015, China has been producing some 300 million

more tons of steel than it can consume. In the years leading up to 2015, China was

QUESTION 5: Are the EU and the United States correct to impose significant

antidumping duties on imports of Chinese steel? What will the benefits of such policy be?

Are there any drawbacks?

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

trade. Some students will probably suggest that because China appears to be violating

WTO policies, the United States and European Union are fully justified in imposing

QUESTION 6: Can you think of any unintended consequences that might occur as the

result of the imposition of antidumping duties on Chinese steel imports by the United

States and the EU?

ANSWER 6: Responses to this question will vary by student. Many students will

probably focus on retaliatory actions that could be taken if the situation continues to

QUESTION 7: What other steps could be taken in the long run to reduce the probability

that producers in China and elsewhere will dump their excess production at a loss on

world markets?

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ANSWER 7: Responses to this question will vary by student. Many students will explore

alternatives related to increasing efficiency in the steel industry. Some students may

MHE INTERNATIONAL BUSINESS VIDEO LIBRARY

Please click here to visit our International Business Video Library which provides an

ongoing stream of updated video suggestions correlated by key concept and major topic.

Every new clip posted is supported by teaching notes and discussion questions. Please

feel free to leave comments in the library that you feel 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 Exercises

Exercise 1 Answer

Chapter 07 – Government Policy and International Trade

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McGraw-Hill Education.

Website: https://ustr.gov/about-us/policy-offices/press-office/reports-and-

publications/2017/2017-national-trade-estimate

globalEDGE™ Category: Trade Tutorials

Additional Info:

Compiled annually by the Office of the U.S. Trade representative, each country’s report

features information on tariff and non-tariff trade barriers that U.S. exporters face in

exporting products and services to the country of choice.

Exercise 2 Answer

Search phrase: World Trade Organization