Bus 40 International Business
Homework Assignment
[Instructor comments appear in bold, italic font within brackets below.]
1. Do you think governments should take human rights considerations into account when granting preferential trading rights to countries? What are the arguments before and against taking such a position?
My answer would be yes. Popular consensus has the power to change government opinion as to what policy to pursue. I had to reread the chapters and do a little research into the websites for the United Nations, WTO, human rights watch, etc…
According to Human Rights Watch, the Chinese government stepped up its repression of political dissidents in 1996 after the Clinton Administration removed human rights as a factor in determining trading status. I was surprised to find when looking at the website for the United Nations that China joined on Oct. 24, 1945, the same day as the United States as a member nation.
I am using the case of China to illustrate my arguments for and against whether a country should receive preferential trading rights. In this case, China was seeking MFN status. In the public eyes, China had poor labor laws. The difference in tariffs for non-preferential trading and preferential trading ranged from 8-40% (that’s an enormous difference). We granted them MFN status anyways. The sanctions we have placed on China for human rights abuses have done little to change them, so in this case it didn’t work. In the argument against government consideration, critics felt that by granting China MFN status, their economic status would improve and human rights policies would change as a result of economic progress. WTO members automatically receive MFN status when they join. China didn’t join the WTO until 2001. My point here is that now China has automatic MFN status anyway. I am wondering now if the WTO has sovereignty over our decisions. Also in a way, we would be less competitive if we turned China down on MFN status over a question of human rights. How much control do we have anyways? [Great!]
In the case of South Africa Sanctions and Embargoes did much to bring about change and caused Apartheid to end, although investment led boycotts against Cuba and Iran have failed to have a similar impact.
2. Whose interests should be the paramount concern of government trade policy-the
interests of producers (business and their employees) or of the consumers?
I believe policy needs to look after the interests of both business and consumers. The government, in representing the interests of producers, has a responsibility to have policy that will ensure that our producers will have a competitive advantage in the world market. The theories outlined in strategic trade policy are designed to help business capture first mover advantages. We, as a nation, have made many mistakes, such as in the steel industry, where we protected the market tool manufacturers and developed too many protectionist policies. This resulted in local tool machine manufacturers creating more expensive machine tool parts, which caused manufacturing costs to go up and output to fail. Everyone lost in the long run, the machine tool manufacturers, the manufacturing industry and the consumer. This does not mean we do not learn from out mistakes. We need to evolve in policy-making development. The case studies outlined are only chosen examples. Small business firms are a very important growing sector, and represent growing income for our economies. They will have an entirely different influence on building policy.
In the eyes of the book, government intervention can be self-defeating, as it sometimes protects the inefficient, or triggers trade wars. The European Cap pertaining to agriculture was a fiasco for both business and consumers. On the other hand, if the government doesn’t set policy to protect the interests of business, then global firms may take an unfair advantage, as in the case of the steelmakers. The steel industry has been very aggressive in bringing antidumping actions against foreign steelmakers. They went to the International Trade Commission and filed complaints. The ITC agreed and levied tariffs ranging from 18% to 67% on imports of certain steel products from Japan.
In the previous chapter looking at Porter’s theory, he argued that a nation’s firms gain competitive advantage if their domestic consumers are sophisticated and demanding. Such consumers pressure local firms to meet high standards of product quality and to produce innovative products. In this case, a free trade policy will benefit the long-term interests of consumers and business.
3. Given the argument relating to new trade theory and strategic trade policy,
what kind of trade policy should business be pressuring government to adopt?
The objective of Chapter Five is to understand how the reality of international trade deviates from the theoretical ideal of unrestricted free trade. New trade theory tells us that the increasing returns to specializations and first mover advantages matter. This theory is principally based on the argument for first mover advantages, where the government uses subsidies to increase the changes of becoming first movers in emerging industries.
From everything I’ve read in Chapter Five, its conclusion points towards book feels, the business community encouraging governments to promote greater free trade and strengthen the WTO. They feel in the long term that business has more to gain from government efforts to open protected markets to imports, and FDI, than from government efforts to support certain domestic industries, and utilized strategic trade policy. [But to obtain first mover advantages, the governments should provide benefits, subsidies, etc.]
4. You are an employee of a US 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 the time were Malaysia and Hong Kong. The US 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 US exports to Thailand. How do you think your firm should respond? What does this tell you about the use of targeted trade barriers?
In the case study of one of the largest clothing manufacturers in the world “Esquel” found it’s growth opportunities limited by Hong Kong’s quota rights. Esquel soon switched production to mainland China. When China’s textiles began to grab marketshare, European producers lobbied and got import quotas on China. Esquel moved to Malaysia where the same thing caught up with them…then Malaysia, then Mauritius, and so on.
Flexibility in location of production would be key here for this company, and many other global companies. The first would also be able to lobby the government and WTO, to listen to their needs. As I said earlier, we learn from our mistakes or perish.
The first should maintain a forward looking approach, and continue to create ongoing research as to what countries have the best conditions for their manufacturing base, in case the situation changes suddenly.
** Minor mechanical errors/typos have been corrected by the creators of CHARLIE