CHAPTER SEVEN
GOVERNMENTAL INFLUENCE ON TRADE

OBJECTIVES

• To realize the rationales for government policies that enhance and restrict trade
• To interpret the effects of pressure groups on trade policies
• To understand the comparison of protectionist rationales used in high-income countries with those used in low-income countries’ economies
• To comprehend the potential and actual effects of governmental intervention on the free flow of trade
• To understand the major means by which trade is restricted and regulated
• To grasp the business uncertainties and business opportunities created by governmental trade policies

CHAPTER OVERVIEW

A government’s political objectives are sometimes at odds with its economic proposals to improve a nation’s market efficiency and international competitiveness. Chapter Seven begins by discussing the reasons why and the ways in which governments intervene in the international trade process. It then examines the economic and the noneconomic effects of those actions upon participants in that process. Finally, the chapter considers the principle instruments of trade control, including both tariffs and nontariff barriers, and concludes with a discussion of ways in which firms can deal with adverse trading conditions both at home and abroad.

CHAPTER OUTLINE

OPENING CASE: TEXTILE AND CLOTHING TRADE [See Fig. 7.1.]
The United States and Europe have a long history of protecting their domestic textile and garment manufacturing industries. Negotiated in response to political pressures from firms and workers in those countries, the Multifiber Arrangement (MFA) of 1974 permitted importing countries to (i) place tariffs on imported textiles and clothing and (ii) negotiate quotas with exporting countries. The arrangement included more than forty countries whose firms were heavily tied to the U.S. and European