Download LO1: WHY DO NATIONS TRADE?

CHAPTER 5
GLOBAL
t
PENG
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Chapter 5 LEARNING OBJECTIVES
After studying this chapter you should be able to:
1. Use the resource- and institution-based views
to explain why nations trade
2. Identify and define the classical and modern
theories of international trade
3. Explain the importance of political realities
governing international trade
4. Identify factors that should be considered
when your firm participates in international
trade.
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rights reserved.
LO1: WHY DO NATIONS TRADE?
Terms to know:
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Exporting
Importing
Merchandise trade
Service trade
Trade deficit
Trade surplus
Balance of trade
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LO1: WHY DO NATIONS TRADE?
 Must be economic gains from trade for both
sides.
 Resource-based view: nations trade because
some firms in one nation generate exports that
are valuable, unique and hard to imitate.
 Institution-based view: different rules
governing trade are designed to determine how
gains are shared or not shared.
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LO2: THEORIES OF
INTERNATIONAL TRADE
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LO2: THEORIES OF
INTERNATIONAL TRADE
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LO2: MERCANTILISM
 Views international trade as a zero-sum game.
Nation that exported more than it imported
would enjoy net inflow of money.
 Intellectual ancestor of protectionism – idea
that governments should actively protect
domestic industries from imports and promote
exports.
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LO2: ABSOLUTE ADVANTAGE
With free trade, a
nation gains by
specializing in
economic
activities in which
it is more efficient
in than others.
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LO2: ABSOLUTE ADVANTAGE
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LO2: COMPARATIVE
ADVANTAGE
The relative
advantage in one
economic activity
that a nation
enjoys over
others.
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LO2: COMPARATIVE
ADVANTAGE
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LO2: PRODUCT LIFE CYCLE
THEORY
Dynamic theory that accounts for changes
in the pattern of trade over time.
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LO2: PRODUCT LIFE CYCLE
THEORY
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LO2: PRODUCT LIFE CYCLE
THEORY
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LO2: PRODUCT LIFE CYCLE
THEORY
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LO2: STRATEGIC TRADE
Suggests that strategic government intervention
in certain industries can enhance their odds for
international success.
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LO2: NATIONAL COMPETITIVE
ADVANTAGE OF INDUSTRIES
Competitive advantage of certain industries in
different nations depends on four factors:
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LO3: IMPORTANCE OF
POLITICAL REALITIES
 Tariff Barriers – means of discouraging imports by
placing a tariff (tax) on imported goods.
 Non-tariff barriers – discourages import by means
other than taxes:
 Subsidies
 Import quotas
 Voluntary export restraints
 Local content requirements
 Administrative policies
 Antidumping duties
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LO3: IMPORTANCE OF
POLITICAL REALITIES
Economic arguments against
free trade:
The need to protect domestic
industries.
 The need to shield infant industries.
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LO3: IMPORTANCE OF
POLITICAL REALITIES
Political arguments against free trade:
 National security: often invoked to
protect defense-related industries.
 Consumer protection: used as argument
for trade barriers.
 Trade intervention: often used to meet
foreign policy objectives.
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DEBATE: SHOULD THE US/CHINA
TRADE DEFICIT BE OF CONCERN?
 No:
 Based on classical theories, argue that
US and trade partners are developing
deeper division of labor based on
comparative advantage.
 Yes:
 Argue that international trade is about
competition.
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LO4: FACTORS WHEN CONSIDERING
BUSINESS WITH OTHER NATIONS
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rights reserved.