International Essay

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Government Intervention * Governments intervene in trade and investment to achieve political, social, or economic objectives. * Governments impose trade and investment barriers that benefit interest groups, such as domestic firms, industries, and labour unions. * Government intervention alters the competitive landscape, by hindering or helping the ability of firms to compete internationally. * Government intervention is an important dimension of country risk. * Protectionism — national economic policies that restrict free trade. Usually intended to raise revenue or protect domestic industries from foreign competition. * Customs — the checkpoint at national ports of entry where officials inspect imported goods and levy tariffs. Government Intervention: Key Instruments * Tariff – a tax on imports (e.g., citrus, textiles) * Nontariff trade barrier – government policy, regulation, or procedure that impedes trade * Quota – quantitative restriction on imports of a specific product (e.g., imports of Japanese cars) * Investment barriers – rules or laws that hinder foreign direct investment (e.g., Mexico’s restrictions in its oil industry) Consequences of Protectionism * Reduced supply of goods to buyers * Price inflation * Reduced variety, fewer choices available to buyers * Reduced industrial competitiveness * Various adverse unintended consequences (e.g., while the home country dithers, other countries can race ahead) General Rationale for Government Intervention * Tariffs can generate substantial government revenue. This is a key rationale for protectionism in undeveloped economies. * Helps ensure the safety, security, and welfare of citizens. E.g., most countries have basic regulations to protect the national food supply. * Helps the government

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