Question

a) Describe any five instruments of political economy of international trade? b) Discuss whose interest should be the paramount concern of government trade policy? c) Given the arguments relating to the new trade theory and strategic trade policy, what kind of trade policy should business be pressuring government to adopt? d) Why is it important to align the organizational structure to the chosen strategy in international business?

Answer 1

a) The five instrument of political economy are:

• the tariff formation approach:It is the calculation of cmpromise tariffs the size of which takes into account the interest of consumers of services,resource-supply organizations,public authorities and investors
• the political support function approach:This approach can be viewed as an extension to the tariff formation approach.In this case however the policy maker maximises a welfare function which trade off gains from protection against the losses to the population
• the median voter approach:It underlines the political decision that reflects the self interest voters,lobbying groups, politicians or other decision makers preference in trade policy
• the campaign contribution approach:It explicitly address the role of political contribution in trade making policy, in the former lobbies contribute to the political campaign of a political party so as to increase the probability of election of such political candidate
• the political contribution approach:It is a instrument that doesn't allow for competition among politicians,lobbies confront the government with a contribution schedule contingent on trade policies such that each lobby maximizes its indirect utility function net of contributions.

b)The concern of government trade policy is to protect jobs and overall industries from international business and the protection of national security. The overnment use tariffs which protect domestic industries from foreign competition by increasing the cost of imported goods through tax. Tariffs are also beneficial to the home country as they raise revenue.In general trade policies will maintain the equality between domestic consumer and producer prices but will drive a wwedge between domestic prices and foreign prices. Domestic policies will drive a wedge between domestic consumption and production prices.

c)The strategic trade policy the business are pressuring on the government are as follows:

• The business urged the government to adopt advanced technology and subsidies so that there will be development in work and companies then able to progress
• The government should provide subsidies todomestic firms in global market so that they will not face in financial issues
• The government should provide proper resources and technology that help them to grow and develop in the market because of the large competition in the market
• To adopt the level of the international market, so the government is shifting to the domestic markets to not face the losses in the future.

d) It is importnat to allign the organizational structure to the chosen strategy in international business because the firms can customize its products to meet the specific preferences and needs of local customers.As a result the firm can complete more effectively in local local market and increase its local market share