International Business in General, These

International Business

In general, these types of trade wars are not beneficial to the people in the countries involved. In each of these cases, trade barriers appear to be erected for political reasons. In Russia with the chickens and in the U.S. with the tires, the barriers appear to have been put in place to protect domestic jobs from competition. The problem with that approach is that the competition keeps prices down for consumers. This relates to the theory of comparative advantage. If China can produce tires at a lower cost than the U.S. can, then the U.S. should import its tires from China. Likewise, if the U.S. can produce chickens at a lower cost than China can, then China should import American chickens (as should Russia).

However, trade wars arise from complex situations that go far beyond was Ricardo described. With respect to chickens, for example, the underlying issue is food security. Most nations take the view that food security is a critical national security issue. Being able to feed itself helped Britain survive World War Two. China's entire economic overhaul since 1979 has been driven in large part by the need to eliminate the famines that were the cause of rural unrest and were therefore a threat to the Communist Party's rule. With an issue like tires, the United States is working to protect domestic employment. While tires might be less a national security issue than food, tires are a product in which the U.S. would want to maintain some production. In addition, domestic jobs are protected in certain sectors at the expense of price.

Despite the alternate considerations, the economic gains from trade wars are spurious at best. Prices tend to rise. Local producers, knowing that the government will protect them, will reduce their level of innovation, resulting in even higher costs of production in the future. In addition, trade barriers can spur innovation by other countries, as they seek to improve efficiency to offset the tariffs that have been erected. An example of this would be the softwood lumber dispute with Canada. U.S. tariffs simple forced Canada's inefficient producers out of the market, and the remaining producers became so efficient that they were able to dramatically undercut the stagnant U.S. industry. Unless there are significant other considerations at play, such as national security, trade wars hurt the people in the countries participating. Even when there are individual winners, such as the tire union, society as a whole loses, and the trade war simply represents a transfer of wealth from the general public to one specific set of manufacturers/laborers.

2. There are a number of key cultural differences between Brazil and the United States. If we analyze Hofstede's cultural dimensions (2009), we can see several characteristics on which Brazilians differ from Americans. They are risk averse and do not readily accept change, while Americans are risk-taking and most do not mind change. Brazil scores relatively low for individuality, something that is not just reflected in business but also in frequent socialist governments at all levels (Sterling, 2010). Brazilians have a high degree of power distance relative to Americans, something that can influence communication between the two cultures. Brazilians score highly on uncertainty avoidance -- where Americans may be willing to accept a certain degree of ambivalence and leave details unfinished, Brazilians are less likely to do so (Hofstede, 2009).

These differences can have a significant impact on business activities. At the broader cultural level, the government is much more actively involved in the economy in Brazil than in the United States. Where a firm can do business in the U.S. without running into anything more than routine government paperwork, in Brazil the government may take an active role in transactions of all sizes. The public interest and greater good are taken into consideration when making decisions, not just the firm-specific economic consequences of a deal. It might be difficult for American companies to adjust to this high level of government intervention in business activities, especially when this intervention occurs post-deal. Difficulties in dealing with the Brazilian government may be compounded by the country's relatively high rate of corruption (Michener, 2011).

At the firm-to-firm level, the cultural differences between Brazil and the United States can manifest in a number of ways. Because of the difference in power distance, Brazilians are likely to want to negotiate with their equals. If the CEO of a Brazilian company arrives at a meeting and the U.S. firm sends only lower level representatives, this will be taken as an insult, even if the lower level representatives are far more qualified to conduct the negotiation. The lower level of tolerance for uncertainty also means that contracts need to be negotiated and written in full. Details are not to be hashed out later after an agreement in principle.

Deals are also affected by risk aversion. Americans -- and by extension their companies -- have embraced their economic freedom with a willingness to take on relatively high levels of risk related to most companies. In Brazil, this is not the case. The Brazilian side of any negotiation is likely to reject any risky aspect of a deal. They may also seek to offload some of a project's risk on the willing U.S. partners.