Topic 6: International Trade: Theory and Practice

Why do firms engage in foreign trade

profit, export incentives, import incentives

What are the export incentives

reduced per unit production costs, use of excess production capacity, price premium in foreign market, risk spreading

What are the import incentives

cheaper supplies, additions to product line, reducing risk in the supply chain

What is aus primary commodity export

iron ore, coal and natural gas

What are aus top imports

petrol and personal travel

What is aus most imporant export market

asia, china is first

What is the effect of trade interdependence

neighbouring countries trade more but not competing products, effect on developing and transition economies, dangers of trade dependency such as political levering, balance between dependence and independence

What are the important trade theories

absolute advantage, comparative advantage, hecksher and Ohlin theory of factor endowments, porter’s competitive advantage

What are the aspects that make up national competitive advantage/porter’s competitive advantage

firm strategy, structure and rivalry, local demand comdition’s, related and supporting industries, resource availability (factor endowments)

What are the political arguments for government intervening in markets

protecting jobs, national security, retaliation for unfair competition, protecting from dangerous goods, protecting human rights in exporting countries, environment

Economic arguments for governments intervening in markets

raising revenue particularly in low income countries, protecting infant industries, strategic trade policy

What government policies promotes trade

subsidies, export financing, foreign trade zones, export promotion agencies

What government polices that restrict trade

tariffs, quotas, embargoes, administrative delays, local content requirements, voluntary export restraints

What is a subsidy

financial assistance to domestic producers

What counts as subsidies

cash payments, tax breaks, low interest loans

what do subsidies do

lower costs to compete against cheaper imports or to gain export markets

Subsidy example

us and european subsidies for agriculture

What is export financing

loans to finance export slaes and export credit insurance to reduce risk

What is included in export financing

loans, bonds, guarantees to reduce the risk to both the exporter and importer

Export financing examples

in aus provided by the Export finance and insurance corporation

What are export promotion agencies

promotes exports, organises trade missions, advertises home country products

who is the export promotion agencies in aus

australian trade commission

who gains in the short run with tariffs

government, domestic producers and manufacturers, employees of protected industries

who loses in the short and long run with tariffs

consumers, overall economy, employees of protected industries

What are non-tariff trade barriers

quotas, embargoes and local content requirements, anti-dumping polcies

What is the example of how sanctions aren’t always effective

north korea ski resort where switzerland vetoed an anttelp to sell a ski lift to north korea but they still got swedish snow-blowers

What is the goal of the WTO

advocate and faciliatror of future trade deals

What is the future of WTO

doha round talks stalled, anti-globalisation movement, challenges in proving unfairness in anti-dumping actions

What is the current agenda of the WTO

rise of anti-dumping policies, high protection in ag, weak protection for intellectual property rights, continued tariffs

What are the implications for managers

first mover implications, location implications, foreign investment decisions, government policy implications, trade barriers exist in many forms, trade barriers constrain a firm’s strategy, government policy has a direct impact on bus but firms can influence gov polices

Implication for managers - first mover implications

invest to be an early entrant in a market that can only support a few firms

Implication for managers - location implications

consider countries that have comparative advantage to locate appropriate activities