Transcript File
Chapter 9 Political and Economic Factors Affecting International Trade 9.1 – The Political Process: Government’s role in international trade Canada promotes Canadian businesses abroad by establishing import and export policies to protect Canada and Canadians eg. Dangerous or endangered animals, paying duties on imports Develops trade policies and regulations Assists Canadian exporters (EDC – export development Canada) http://www.edc.ca/EN/About-Us/Pages/default.aspx Matches Canadian exporters with international clients – Trade Missions Maintains relationships with other countries for trade purposes – G8, APEC, Key institutions for helping Canadian businesses are the Canadian Embassy Office/High Commissions/Trade Consulates located abroad – ambassadors/trade commissioners – helpful for work permits or visas Political Risk Political conditions, decisions, events, or activities in a country that affect the business climate – eg. The Arab Awakening- Tunisia Apart from financial loss there may also be Time delays – Algerian hostages oil fields – The Latest News – Fate of American Hostages Technical breakdown – Syria – set fire oil fields Loss of reputation – Bangladesh Tragedy Economic Risk Government policies and controls that affect prices and currency values. Eg. Raising the minimum wage, US bailout of GM/Chrysler, US government spending 11 trillion dollars to boost economy in 2009. Types of Political Systems Democracy – followed by most developed countries General public get to vote to decide who rules Individuals may own property Individuals may own businesses Free press Freedom of speech Have MARKET economies which allow supply and demand to allocate resources (labor, capital, land, entrepreneurship) Types of Political Systems Totalitarian Systems N. Korea, Cuba Power all belongs to the government Often use large armies to support government May be single party rule or dictator No elections Have a COMMAND economy which means the government allocates resources. Range of Economic Systems 9.2 Assessing Risks Types of Political Risks Risk of general political instability Ownership Risk Operations become threatened by government takeover (EXPROPRIATION) Operations Risk May cause stoppage in operations and profits may decline Government policies may hurt operations like finance, marketing or production. Eg. New taxes, import restrictions (new legislation) Transfer Risk Government policies result in a devaluation of the currency which lowers profits and makes it harder to transfer profits out of the foreign country Repatriation of earnings – when a foreign government forces a company to return a considerable percentage of profits to the local government Questions a company should ask itself when trying to assess risks Is TERRORISM part of the political landscape? Could EXTREMIST groups pose a danger? Has there been a WITHDRAWL of freedoms? What is the MILITARY’S role in government? Is CORRUPTION part of the business ethic? Could RELIGEOUS or ETHNIC pressures lead to civil problems? 9.3 Economic Factors A MARKET ECONOMY has individual companies and consumers make the decisions about WHAT HOW FOR WHOM Goods and services are produced Characteristics of Market Economies Ownership of private property is encouraged Individuals are free to make a profit Competition is encouraged for low prices and high quality The job of the government is to provide a healthy environment for businesses Foreign investment is encouraged Forces of SUPPLY and DEMAND control market economies Law of Demand – as the price of a product increases, consumers will demand less of that product Curve is DOWNWARD sloping Law of Supply – as the price of a product increases, producers will be willing to produce more of that product Curve is UPWARD sloping Centrally Planned Economies Command Economy – the government regulates the amount, distribution, and price of goods and services Characteristics No private ownership of land or business Needs of the whole society are more important than the individual The state makes decisions for the citizens – consumers have no say in what is produced Profits are NOT a motivator for individuals Mixed Economies Most economies today are MIXED meaning that they combine government involvement with private ownership Some mixed economies have government ownership of key industries like transportation and natural resources Canada, through its CROWN corporations operates and controls some key industries and companies like CBC, Canada Space Agency, Northern Pipeline NOTE: Remember that when a government sells off a crown corporation it is called PRIVATIZATION. Business Cycles – Pattern movements in the economy Business cycles are measured by industrial growth and production in the economy (GDP) Phases of the Business Cycle Depression/Trough – Slow economy – Consumers buy less, factories close, unemployment is high. Government collects fewer taxes due to fewer people working; however at the same time the government may need to intervene to help (spend money to get people jobs) Recovery – improvement begins – production slowly increases which provides new jobs and consumer spending improves. Prices eventually rise as consumers are demanding more. Prosperity – Economy is doing well – Employment, profits and wages increase. Investment is strong. Raw materials and labor may become scarce Recession – Economy starts to slow – consumers buy less, increases in business failures and unemployment. Cutbacks begin. **A recession occurs when total economic output falls for 6 months consecutively.