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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?
Chapter 07 – Government Policy and International Trade
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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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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
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?
Chapter 07 – Government Policy and International Trade
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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?
Chapter 07 – Government Policy and International Trade
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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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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
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
