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Government policies and regulations affect trade.
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To identify different types of governments
To discuss the ways in which governments influence international trade
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Understanding a country’s form of government is an integral part of doing business globally.
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Governments and International Business
Government policies and regulations affect all aspects of importing and exporting.
Legal systems regulate trade.
You need to be familiar with different types of governments and the legal requirements unique to international trade.
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Types of Governments
The two basic types of national governments are:
Democratic
Totalitarian
Most governments have characteristics that fall somewhere in between these two types.
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Types of Governments
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Democratic Governments
A democracy usually stresses the rights, freedom, and responsibilities of the individual.
democracy
a government system in which the nation’s citizens hold political power
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Democratic Governments
Characteristics of Democratic Political Systems
Freedom of opinion, expression, and press, and freedom to organize
Elections in which voters choose officers of the government
Limited terms of elected officials
An independent and fair court system that has respect for individual rights
A nonpolitical bureaucracy and defense infrastructure
Access to the decision-making process available to citizens
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Democratic Governments
Many democracies use an economic system based on supply and demand, which is known as a market economy.
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Totalitarian Governments
With totalitarianism, the government controls all aspects of life, including attitudes, values, and beliefs.
totalitarianism
a type of government system in which citizens have no influence on the government’s policies and laws
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Totalitarian Governments
Types of totalitarian governments include:
Fascism
Authoritarianism
Communism
Totalitarian governments can be theocratic or secular.
Theocratic: Religious leaders are the political leaders.
Secular: Leaders come from the military or rise up through the country’s single political party.
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Totalitarian Governments
When a nation’s government directs the economy, it is known as a command economy.
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Totalitarian Governments
A theocracy is not always a totalitarian dictatorship and may include a mixture of elected officials and religious influences.
theocracy
a type of totalitarian government whose leaders claim to be inspired by divine guidance
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Mixed Systems
Most countries fall between democracies and totalitarian governments.
The United Kingdom is a constitutional monarchy.
China is a totalitarian government that is moving away from a command economy.
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Political Environments
Two main factors guide governmental actions:
IsolationismConservative orLiberal Attitudes
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Isolationism
Isolationism is a foreign policy that combines an avoidance of political and military alliances with a policy of economic nationalism or protectionism.
International trade is difficult with an isolationist country.
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Conservative or Liberal Attitudes
A conservative attitude favors limits on government activities and promotes private ownership and business domestically and internationally.
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Conservative or Liberal Attitudes
A liberal position favors more government involvement in business with strong consumer protections.
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Economic Policies and Practices
The political environment of a country affects:
importing
exporting
international trade
These are affected by a country’s policies on taxes,
trade barriers, and free trade.
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International Taxes
Tax policies influence how people and businesses invest money.
If a company’s leaders find places where business tax rates are lower, they tend to locate their business in those places.
Companies take advantage of “enterprise zones.”
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International Taxes
Types ofInternational
Taxes
Income Tax
Sales Tax
Excise TaxPayroll Tax
Value-Added Tax (VAT)
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An annual tax on an individual’s or corporation’s net profit
A tax on the sale of a product
A tax on specific goods and services
A tax that employers withhold from employee’s paychecks
A sales tax paid on the increased value of a good
International Taxes
Income Tax
Sales Tax
Excise Tax
Payroll Tax
Value-Added Tax(VAT)
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Trade Barriers
Reasons for trade barriers include:
Isolationist countries may wish to prevent outside influences.
Embargoes or boycotts may be used to make political statements.
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Free Trade
Benefits of free trade include:
Improved economic well-being
Availability of previously unavailable goods
Strengthening political alliances
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Free Trade
A governments may enter into a free trade agreement to encourage international business.
free trade agreement
a treaty between countries in which the countries agree to not charge taxes, duties, or tariffs on goods they tradeNAFTA is an example of
a free trade agreement.
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Free Trade
A country may offer to reduce the burden of double taxation for a company in exchange for gaining the benefit of economic growth that the company can provide.
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Political Risk
Political Risks to International Businesses
TradeSanctions
Expropriation
EconomicNationalism
PoliticalTurbulence
War
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Political Risk
The use of a tariff, boycott, or embargo to make a political statement
The act of taking control and ownership of a foreign-owned company or operation
The practice of discouraging the importing of goods in order to protect a domestic product
The generic name for types of disruption such as protests, strikes, and other social disorder
A devastating blow to the local economy and to international business
Trade Sanctions
Expropriation
EconomicNationalism
PoliticalTurbulence
War
