Global Marketing Management Professor Tamara L. Cohen

MKTG 3215-001: Global Marketing Management
Professor Tamara L. Cohen
University of North Carolina - Charlotte
Fall 2011
Table of Contents
Page
1. Stephen Spruiell, "Protectionism - Tariffs, Subsidies, and Trade Policy,"
Global Envision, August 2006, pp. 1-8.
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2. G. Richard Shell & Mario Moussa, "Ch. 1. Selling Ideas: How Woo
Works," the art of woo, Penguin Group (USA) Inc., 2009, pp. 9-39.
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3. Paul Midler, "Ch. 2. Trouble Is My Business," Poorly Made in China: an
insider's account of the tactics behind China's production game, John
Wiley & Sons, Inc., 2009, pp. 8-25.
41
4. Mike Lee, "Book Summary: The World is Flat," BizThoughts, May 2007,
pp. 1-8.
59
5. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Ch. 5. Culture,
Management Style, and Business Systems," International Marketing,
McGraw Hill, 2011, pp. 146-148.
67
6. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Crossing Borders
12.1," International Marketing, McGraw Hill, 2011, p. 337.
71
7. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Ch. 12. Global
Marketing Management: Planning and Organization," International
Marketing, McGraw Hill, 2011, pp. 344-354.
73
8. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Ch. 14. Products
and Services for Business," International Marketing, McGraw Hill, 2011,
pp. 406-409.
85
9. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Ch. 13. Products
and Services for Consumers," International Marketing, McGraw Hill, 2011,
pp. 377-382.
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10. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Ch. 16. Integrated
Marketing Communications and International Advertising," International
Marketing, McGraw Hill, 2011, pp. 475-477, 491-492.
95
11. Allen Webb, "Starbucks’ quest for healthy growth: An interview with
Howard Schultz," McKinsey Quarterly, McKinsey & Company, 2011, pp. 17.
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12. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Case 1-2 Nestlé:
The Infant Formula Controversy," Ed. J. Alex Murray, International
Marketing, McGraw Hill, 2009, pp. 598-601.
109
13. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Case 4-6 AIDS,
Condoms, and Carnival," International Marketing, McGraw Hill, 2009, pp.
671-674.
113
14. Philip R. Cateora, Mary C. Gilly, and John L. Graham, "Country
Notebook," International Marketing, McGraw Hill, 2011, pp. 579-588.
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*Permission to reprint all selections granted to University Readers by the
publishers for this individual course reader. Please don’t photocopy – to do so
would be a violation of copyright law.
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Protectionism - Tariffs,
Subsidies, and Trade Policy
Posted on August 30, 2006
Previously filed under: Trade
Stephen Spruiell explains the impact of protectionist policy, tarriffs, and subsidies on
global trade.
In the swirling debate over globalization and
free trade, one tends to lose sight of the
actual policies being debated. Amidst
competing concerns of "environmental
destruction," "exploitation," and "Gap is the
real terrorist," one can forget what the word
"globalization" describes, and what
specifically is meant by "free trade."
Globalization refers to the implementation of
free trade on a global scale, which is
accomplished through international trade liberalization. A country liberalizes its trade
with other countries by removing policies that serve as barriers to trade.
Examples of trade barriers include tariffs, which are high taxes on imported goods that
make them less competitive with domestic products, and subsidies, which are monies
paid to domestic producers that allow them to sell goods more cheaply than their foreign
competitors. Both policies keep foreign producers from selling very much in domestic
markets, because when given the choice most people will buy what is cheapest. Trade
policy is extremely simple: it boils down to what tariffs or subsidies a government
chooses to implement to keep its country's markets closed to other countries (of course
there are other policies governments can use, such as quotas on imported goods,
expensive licenses for importers, and sometimes outright bans on foreign goods, but
tariffs and subsidies are the main ones). A policy agenda that seeks to maximize the
number of tariffs and subsidies a government employs is usually called protectionism.
Arguments for Protectionism
As a policy agenda, protectionism is defended by three major arguments. The first is
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that protectionist policies like high tariffs and subsidies save jobs in domestic industries.
This argument reasons that if a domestic industry, such as the steel industry in the
United States, is forced to compete against a foreign country that produces steel more
cheaply, such as Brazil, then that domestic industry will have to lay off hundreds or
thousands of workers in order to stay competitive. Entire communities whose livelihoods
depend on the steel industry will be decimated by poverty.
Governments that
The second argument, a corollary to this one, is that
employ [bargainingchip] theory use tariffs eventually, left to compete for too long against Brazil, a
domestic industry like U.S. steel might collapse completely,
and subsidies as
leaving
the United States dependant on foreign steel. This,
bargaining chips at the
negotiating table with the argument goes, could be devastating if the United States
suddenly went to war with everyone (a scenario that seems
other countries.
less and less implausible these days), as it would find itself
unable to produce a badly needed resource.
The third argument favors protectionist policies for a slightly different reason. This
argument postulates that a country's protectionist policies should be reciprocal to those
of other countries - in other words, that our barriers have got to be as high as the other
guy's. Governments that employ this theory use tariffs and subsidies as bargaining
chips at the negotiating table with other countries.
This so-called "bargaining chip" theory is neither pro- nor anti-trade, but views
protectionist politics as a game of give and take. For example, at a meeting of the World
Trade Organization, U.S. Trade Representative Robert Zoellick might tell Brazilian trade
minister, "We're willing to lower our steel tariffs. But only if you eliminate your quotas on
blond hair dye."
People who take this view usually focus on opening markets abroad while keeping their
own markets as protected as possible, in the interest of maximizing exports and
minimizing "harmful" imports.
The Costs of Protectionism
Each of these arguments may seem compelling. Take the first one, for instance, that
protectionist policies are necessary to save jobs. Steel workers are indeed imperiled
when their industry is mismanaged to the brink of insolvency; their communities often
depend upon the jobs that the steel industry provides; and many have few other skills
on which to fall back. To protect these workers, some argue, it is necessary to impose
high tariffs on imported steel.
But what about those who work in factories that produce things made of steel? Take a
factory that produces hubcaps.
The question is not,
"Should we save these
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Say this factory has been buying Brazilian steel very cheaply
in order to make its rims available at a low price. But then
lobbyists for the U.S. steel industry complain that they can't
compete with Brazilian steel and that they will soon be forced
to lay off a significant number of workers.
jobs?" It is, "Should we
save these jobs at the
expense of other jobs,
or should we let
economic efficiency
decide where people
Realizing that the steel lobby is good at turning out voters on
and resources are best
Election Day, the U.S. government slaps a 30 percent tariff on
employed?"
imported steel, making Brazilian steel 10 percent more
expensive than U.S. steel.
Suddenly the American hubcap factory must start paying 20 percent more for the steel it
uses to make its wheels. But the U.S. government hasn't put a tariff on dubs. So now
Japanese hubcap factories, which can still buy steel at world prices, can make dubs
more cheaply than the American factory.
The result? Americans start buying their dubs from Japan. Facing declining revenue,
the American hubcap factory must lay off a significant number of workers, go out of
business, or sign some sort of contract with the Cash Money Millionaires. In all
seriousness, this is precisely what happened to many manufacturers when President
Bush imposed new steel tariffs in March of 2002.
So the question, when times are tough for a particular industry, is not, "Should we save
these jobs?" It is, "Should we save these jobs at the expense of other jobs, or should we
let economic efficiency decide where people and resources are best employed?"
Even when the case is not cut and dry like with steel and hubcaps, domestic
protectionism always has a domestic cost. Most of the time, however, the costs of
protectionism go unnoticed, because protected jobs in one industry are concentrated
and easy to see, while the costs throughout the economy are widely dispersed, over a
hundreds of industries and millions of consumers.
In the case of the steel tariffs President Bush introduced in March of 2002, the cost was
$732,000 in higher prices for each steel job saved, according to Dan Griswold of the
Cato Institute.
Relying on Foreign Industry
The second argument for protectionism can also seem compelling. "Okay," one might
say, "steel tariffs save steel jobs but cost others their jobs throughout the economy. But
if we left the U.S. steel industry unprotected, it might collapse entirely, leaving us overreliant on foreign steel. Isn't that bad?" This would indeed be bad if this were the way
free trade actually worked. But this is not how trade works for the developed world or for
developing countries.
In the developed world, competition from abroad normally has the effect of spurring
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needed reforms in domestic industries, making them stronger rather than weaker. But
one could take a worst-case scenario and still show that it is unlikely that developed
nations would lose the capacity to produce for themselves what they currently import.
In the developed world,
Suppose that the U.S. steel industry really did collapse,
competition from
abroad normally has the unable to compete with cheap imports from, for consistency's
sake, Brazil. Then suppose U.S. foreign policy alienated
effect of spurring
everyone on the planet, leading to a worldwide steel embargo
needed reforms in
on the United States.
domestic industries,
making them stronger
The demand for steel in the United States would be so great,
rather than weaker.
and Americans willing to pay such a high price for steel, that
one of two things would occur: entrepreneurial Americans would finance the resumption
steel production and make a fortune, or some foreign nations would cheat on the
embargo. Supply will always find its way to demand, even though the chances of this
scenario occurring are virtually nonexistent.
Industries in the Developing World Need to be Protected?
As for developing countries, many actually bought this argument wholesale a generation
ago and only today are recovering from its folly. As they gradually won their
independence from colonial powers such as Great Britain, many leaders in the
developing world viewed imports as another form of dependence on their former
masters.
They proposed what is called "import substitution" instead. Under this system, a
command-and-control local government would dictate how the nation used its resources
as it struggled to produce everything it formerly imported.
Needless to say, this strategy cannot lead to prosperity, and it did not. As detailed in
Brink Lindsey's Against the Dead Hand:
The Uncertain Struggle for Global Capitalism,
the Third World fell into a deep debt crisis as
it borrowed and borrowed in attempts to
produce enough of everything it needed.
Today the example of East Asia has
demonstrated that the way out of poverty for
many developing nations is to export things
they can make easily and cheaply, in
exchange for imports they cannot produce as
easily.
Globalization is occurring because most of the world is realizing that economic growth
occurs when a country focuses on producing what it's relatively very good at and
exporting as much of that product as possible, in exchange for imported goods it cannot
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produce as well.
In this way, countries use their comparative advantages over other countries to create
value - that is, if I have something you like but I hate, like mustard, and you have
something I like but you hate, like a bleu cheese dressing and bologna sandwich, then
we can trade and, although nothing new has been "created," we are both richer. Unless
you hate mustard too. (For an explanation of this phenomenon that does not involve
condiment metaphors, see Adam Smith's The Wealth of Nations.)
The principle of comparative advantage means that every nation, no matter how
undeveloped or poor, has a comparative advantage in producing some good. To
understand how comparative advantage works, take this example. Bill Gates is a good
software designer.
He also happens to be a good typist. It makes sense for Bill Gates to spend most of his
time working on software and not typing his memos. He employs an assistant to type
his memos even if he is a better typist than his assistant. The same goes for countries.
Protectionism is a "Bargaining Chip"
Many people who understand this principle still advocate the third argument for
protectionism: that it is a necessary evil because everyone else is doing it, and
countries can only lower their trade barriers via a slow give and take. Otherwise, they
argue, domestic industries would have to compete against protected industries in other
countries.
U.S. proponents of this argument might say, "Why should our steel industry have to
compete with Brazil's, when Brazil's steel mills receive millions of dollars in subsidies
each year? Of course their steel is cheaper, because subsidies allow them to sell their
steel for less than it costs them to produce it!" They would argue for a "level playing
field," because to accept otherwise would subject domestic industries to "unfair"
competition.
To counter this line of thinking it is necessary to return to the
Keeping domestic
idea of comparative advantages. Comparative advantage
industries protected
can't work as a one-way street. In other words, keeping
while pushing other
countries to open their domestic industries protected while pushing other countries to
open their borders is not only hypocritical, it is harmful to
borders is not only
hypocritical, it is harmful those in the domestic economy who are exporting what they
to those in the domestic are good at producing but are prohibited from importing what
they need.
economy who are
exporting what they are
good at producing but To expand on a previous example, I keep selling you mustard
for cash, but my country places prohibitively high tariffs on
are prohibited from
bleu cheese dressing, leaving me with only enough money to
importing what they
buy bologna and bread. Sure, I can sell you as much mustard
need.
as you're willing to buy, but come on, how much mustard can
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one person eat? So I'll never have enough money to buy the bleu cheese dressing I
need to make my sandwich.
This approach to trade policy protects a few special interests - steel producers and
mustard salesmen, for instance - to the detriment of the country's economy as a whole.
A country's economy grows in overall wealth when it is free to sell what it is best at
producing and buy the cheapest and best goods - even if those goods are subsidized by
other countries' governments - from all over the world.
If some countries sell subsidized goods on the world market, then countries with open
borders get the benefit of buying those goods more cheaply than they could before. The
taxpayers who are subsidizing the local industry are actually subsidizing consumers in
open-market countries.
At the same time, the low costs these open-market countries pay for imports allow them
to shift their resources to their most productive industries, increasing their economic
power.
In this way, open-market countries lead by example. The powerful trend of trade
liberalization started when countries began to realize that the most successful
economies in the world were open-market economies.
The taxpayers who are
subsidizing the local
"Protectionism" when used to describe a policy agenda of high industry are actually
tariffs and subsidies is a term that is apt and misleading at the subsidizing consumers
same time. It gives the impression that the country's overall
in open-market
economy is being "protected" from harmful foreign
countries.
competition. This is simply not the case.
Who Really Benefits from Protectionism?
When protectionist policies are enacted, certain domestic industries are protected at the
expense of others. So in the end, it comes down to which industries can exert the most
influence over domestic politics.
In the United States, the powerful steel, textile and agribusiness lobbies have kept those
industries protected from foreign competition in ways that hundreds of other industries
have not; and while unprotected industries have faced stiff foreign competition, they
have also faced higher prices on steel, textiles and agriculture. One might look at the
situation and decide that steel jobs are more important than other jobs, but to deny the
connection between the two is to ignore evident economic principles.
Each argument for protectionism has merits: protectionism does save jobs in protected
industries, can sometimes save those industries from financial catastrophe, and can be
useful sometimes when it comes to negotiating trade agreements with other countries.
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But in each argument, the government is placed in the role of making arbitrary decisions
between which industries deserve protection, and which must inadvertently bear the
costs of protection. The alternative is a government that does not pick winners but
instead stands by principles and treats each industry the same, regardless of its political
clout or well-connectedness.
The important thing to remember is that economic costs are unavoidable. The question
is not whether an economy can avoid a cost, but who will bear it. Some believe the
government is capable of deciding this question, and some believe that free individuals
should decide it by their actions in the marketplace.
The question is not
whether an economy
can avoid a cost, but But economic costs must fall somewhere. Even if a wide array
who will bear it. Some of protectionist policies could somehow protect every industry
believe the government in the United States from the costs of foreign competition,
is capable of deciding then those costs would accrue to foreign countries, many in
this question, and some various states of destitution and, as previously mentioned,
needing export markets as doorways out of poverty.
believe that free
individuals should
decide it by their actions The conflict over protectionism, when all the rhetoric is boiled
away, pits parochial interests against international ones.
in the marketplace.
Picture the conflict as a factory laborer in a steel town in West
Virginia arguing for tariffs to save his job and his community, versus thousands of
workers all over the world who all have a small but important stake in being able to sell
and buy steel at the lowest possible price: the consumer who will have to pay higher
prices for anything made of steel; the autoworker in Michigan whose plant will lay him
off due to higher steel prices; and finally, the Brazilian steel worker who will lose his job
if the steel he makes is shut out of the United States.
In this case, it is important not to forget the pain of the steel worker who, because his
industry has been mismanaged from the top, is facing the prospect of unemployment.
But it is still important to ask, what about the average American? What about the
autoworker?
What about the Brazilian whose only alternative might be a sort of poverty that has been
largely unknown for decades in the United States? None of them really deserve to bear
the cost. But protectionism almost always places the burden on those who deserve it
the least.
Contributed by Stephen Spruiell, a graduate student in public policy at the University of
Texas. Reprinted with permission from aWorldConnected.
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To read another Global Envision article about the impact of protectionist policies, see
Economic Patriotism: Blind Alley in a Globalized World?
Suggested Reading
Friedman, Thomas L, The Lexus and the Olive Tree: Understanding Globalization.
Griswold, Daniel T, A Wall of Steel.
Hazlitt, Henry, Economics in One Lesson.
Lindsey, Brink, Against the Dead Hand: The Uncertain Struggle for Global Capitalism.
Rockefeller, John D. IV, "Supporting American Steel"
Smith, Adam, The Wealth of Nations.
Tucker, James P. Jr. ,"Steel Workers Want Tariffs."
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