You are an employee of an U.S. firm that produces personal computers in Thailand and then exports them to the U.S. and other countries for sale. The personal computers were originally produced in Thailand to take advantage of relatively low labor costs and a skilled workforce. Other possible locations considered at that time were Malaysia and Hong Kong. The US government decides to impose punitive 100% ad valorem tariffs on imports of computers from Thailand to punish the country for administrative trade barriers that restrict U.S. exports to Thailand. How do you think your firm should respond? What does this tell you about the use of targeted trade barriers?
12 Answers | Add Yours
#2's comment seems the best option here; export to Canada or another intermediary nation, and let the market go from there. However, you might also consider lowering the prices on your goods. If you can guarantee excellent goods at better prices, all the trade markets will vie for your attention. Even if the U.S. wants to punish the trade restrictions, they will always buckle for cheap and well-made goods -- and more often, cheap and poorly-made goods. ;)
I would suggest finding another country which the computers can be manufactured in (with similar low labor costs). By doing so, you may be able to forgo the tariffs. Outside of that, I would support the other options offered above.
Trade barriers by their very nature restrict the flow of goods and services between producer and consumer. Typically, when such restrictions are in place, businesses will end-run government restrictions; in this case, exporting the computers to Canada or another intermediary that would then export them to the US would solve the problem, but only if the added expense of using the intermediary would still be covered by the price.
One way that the firm could find a way out of this situation is to use the fact that it is providing employment to a large group of people and stress the fact that the continuation of the trade restrictions could force it to shut down, resulting in a large number of people losing their jobs. Democratic governments cannot afford to continue with policies that harm people as they are ones that elect those that govern them. This could make the Thai government relax their policies that inhibit US exports into Thailand which in turn could make the US government reduce the tariff they have imposed.
I think this shows that targeted trade barriers always leave the business suffering most. In your scenario, the two countries involved won't really be impacted in the long term. The consequences for the business, however, is going to be potentially disastrous. It either has the option of finding another market for its product, diversifying and/or uprooting.
Depending on the size and importance of the computer manufacturer, they could pursue a course of action that incorporates many of the suggestions in this thread. In particular, they could lobby both governments to lower trade barriers, and they could, if big enough, use the threat of leaving/incentive of bringing jobs to a country as leverage to negotiate with Thailand and the US, as well as Hong Kong and Malaysia, if they are still receptive. It is possible that by engaging all parties involved, the owners could broker an arrangement that suits them (i.e. Hong Kong or Malaysia paying the cost of relocation through subsidies.)
The other posters have offered wonderful suggestions. I cannot see the company staying in Thailand if the government is not willing to work with "you." I would definitely suggest researching other countries who do not place such tariffs on businesses (prior to making a move). It would be a lost cause if the company were to move to another country and find them self in a similar situation.
Basically, this situation tells us that targeted trade barriers lead to trade wars that hurt everyone involved. In particular, they hurt the businesses that get caught in the middle. But this situation, with your company probably leaving Thailand, does not really help anyone.
One possible reaction of the U.S. firm based in Thailand is to uproot and relocate in Malaysia or Hong Kong, but this seems impractical, cost prohibitive, and ineffective. Another option is to use the firm's international power to lobby for negotiations between the two governments so they can sort out their trade disagreements without penalizing businesses.
If you are a small company, then you are really at a loss. There is little that you can do. Governments of nations are way more powerful and probably will not budge for one company. In light of this, you will need to think of ways to recoup your losses and find new areas to manufacture your computers. For example, can you sell them in other countries? Can you sell them in Thailand? Also what are other important labor markets that are competitive? These are questions you should be asking.
Assuming that the tariffs were likely to last, I would:
(a) lobby the Thai government to remove or lower the offending trade barriers
(b) lobby the U. S. government to remove or lower the tariffs; I would argue that such tariffs suppress competition, lead to inefficiencies, hurt consumers, and hurt Americans working for my company
(c) support legislation to radically cut taxes on U. S. manufacturers so that such manufacturers would have a strong incentive to stay in the U. S.
We’ve answered 319,199 questions. We can answer yours, too.Ask a question