Dr. Ziva Rozen-Bakher - A Researcher in International Relations and International Business with a Focus on Security and Political Risks & Economic and Strategic Risks Related to Foreign Direct Investment (FDI), International Trade and Mergers and Acquisitions (M&As)

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PD9 - Research Paper. Rozen-Bakher, Z. Restrictions on International Trade and Foreign Direct Investment (FDI): Nationalism-Mercantilism versus Trade Liberalism

Dr. Ziva Rozen-Bakher

Rozen-Bakher, Z. Restrictions on International Trade and Foreign Direct Investment (FDI): Nationalism-Mercantilism versus Trade Liberalism. Research Paper, PD9. https://www.rozen-bakher.com/research-papers/pd9

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Rozen-Bakher, Z.

Restrictions on International Trade and Foreign Direct Investment (FDI): Nationalism-Mercantilism versus Trade Liberalism  

Abstract

The restrictions on international trade and FDI have become a controversial topic because of the inherent conflict that exists at the country level between the internal public policy and foreign policy of the country. Hence, this study explores how restrictions on international trade and FDI are shaped and implemented according to Nationalist-Mercantilist Ideology versus Trade Liberalisation Ideology. The study indicates that the combination of the policy approach alongside the ideology determines which type of tactics governments use to implement their restriction policy towards international trade and FDI. The study suggests that the Nationalist-Mercantilist Ideology more uses ‘Hard-Direct Tactics’ to restrain international trade and FDI, such as import tariffs, export quotas and FDI exit restrictions. However, paradoxically, the Trade Liberalisation Ideology uses more ‘Manipulative-Indirect Tactics’, such as government subsidies, priority to local firms and local standards. The study concludes that the Nationalist-Mercantilist Ideology uses ‘Hard-Direct Tactics’ that defiantly distinguish between friendly allies and rivals, while the Trade Liberalisation Ideology uses ‘Manipulative-Indirect Tactics’ in trying to keep good relations with everyone including local business, friendly allies, far allies and even rivals. The study emphasizes that policymakers should be cautious when they decide to impose new restrictions and barriers on international trade and FDI to avoid a backfire on the national economy.

Keywords: Restrictions, International Trade, Foreign Direct Investment (FDI), Mercantilism, Trade Liberalisation, Trade Wars

Introduction

This study explores the most controversial topic in shaping policy towards Multinational Enterprises (MNEs) activities, namely the restrictions on international trade and Foreign Direct Investment (FDI) (Aktas et al., 2007; Bagwell & Staiger, 1997; Bao & Qiu, 2010; Brander & Spencer, 1985; Corbo, 1997; Crandall, 1984; Das & Donnenfeld, 1989; Dunning, 1993; Dunning & Lundan, 2008; Fischer & Serra, 2000; Fredriksson, 2006; Gerden, 2010; Hamilton, 2017; Hardin & Holmes, 2002; Hicks & Kim, 2012; Idrisov & Sinelnikov-Murylev, 2012; Ghebrihiwet & Motchenkova, 2017; Gorg, 2005; Korinek & Kim, 2011; Li & Beghin, 2017; Liu & Maughan, 2012; Lynam, 2009; Makino & Beamish, 1998; Mancheri, 2015; Marette & Beghin, 2017; Monadjemi & Lodewijks, 2020; Roy & Pattnaik, 2004; Schwartz & Clements, 1999; Shivakumar, 1993; Tokarick, 2006; Tumwebaze, 2017; Vollrath & Hallahan, 2012; Wong et al., 2014; Yoon & Choi, 2018). From the viewpoint of the country, there are many justifications for imposing restrictions on international trade and FDI, such as to prevent control on national strategic industries by MNEs  (Hardin & Holmes, 2002; Globerman & Shapiro,1999; Mattoo et al., 2004; Sethi et al., 2003), restraining unemployment in local companies (Chao et al., 2001), protecting weak industries, maintaining the powerful position of the country over rival countries, dealing with "unfriendly" countries, shifting capital and labour to sectors with high priority through restrictions in other sectors, maintaining high prices, and preserving national cultural identity (Blommaert & Verschueren, 1992); Daniels & Radebaugh, 2002).

However, the shaping of the restrictions on international trade and FDI is affected by the government's economic-political ideology namely, the Nationalist-Mercantilist Ideology (Ali, 2017; Da-yang, 2019; Reznikova et al., 2018; Smith, 1976) or the TradeLiberalisation Ideology (Winters, 2004). The Nationalist-Mercantilist Ideology gives priority to the local market over foreign firms (Ali, 2017; Da-yang, 2019; Reznikova et al., 2018; Smith, 1976) based on the main principles of the Mercantilism economic doctrine (LaHaye, 2017; Mun, 1895), while the Trade Liberalisation Ideology gives priority to international trade and FDI over the interests of the local market (Winters, 2004) based on the main principles of ‘Comparative Advantage theory’ (Balassa, 1965; Ricardo, 1891; Watson, 2017).

Nevertheless, the shaping of the restriction policy towards international trade and FDI is affected by the inherent conflict between the internal public policy and the foreign policy at the country level. In other words, the shaping of the restriction policy towards international trade and FDI is affected by the national local demands, but at the same time, by the global demands of the country. Hence, the restriction policy towards international trade and FDI is based on the combination of two different policies: The first policy is the internal public policy (Cairney, 2019) of the country that focuses on the impact of the international activity on the local market from the standpoint of the internal affairs, regardless of the home country of the MNE namely, if the MNE is from ally country or rival country. In other words, from the viewpoint of the local market, no matter if the MNE is from allies’ countries or rivals’ countries but what is important is that it's a foreign firm. The second policy is the foreign policy (Alden & Aran, 2016) of the country that focuses on the activity of the home country in foreign markets, or vice versa, on the activities of allies and rivals in the local market, still, both from the international relations perspective. In other words, the foreign policy looks on the international activity from the standpoint of the global order, geopolitics and political power position of the country in terms of who are the allies, rivals, enemies, allies of rivals, and allies of enemies, as well as what is the level of the special relations with allies among the friendly countries.

In spite of the above, the public policy (Cairney, 2019) and the foreign policy (Alden & Aran, 2016) are affected both from political and economic aspects, yet from different perspectives, local and global. Therefore, the internal public policy towards international trade and FDI is affected by national political players and their agenda. Given that, the internal public policy may include various direct and indirect restrictions on MNEs activities (Das & Donnenfeld, 1989), such as a quota limitation regarding foreign workers, antitrust regulation (Baker, 2019; Harrington, 2004) regarding cross-border M&As, strict standards to restrain imported products (Fischer & Serra, 2000; Marette & Beghin, 2017), and giving priority to national products in tenders (Tumwebaze, 2017). However, the foreign policy is affected mainly by the external players of the country, such as its allies, rivals, and enemies, yet the internal players may also influence its shaping (Jacobs & Page, 2005). Thus, the foreign policy impacts the scope of the bilateral, regional and multilateral trade agreements that the country has with other countries (Rosen, H. 2004), as well as about which countries the government may impose import tariffs and in what tariff levels, such as Trump’s policy towards international trade that was influenced by Trump’s foreign policy towards USAs’ allies and rivals (Chapman, 2019; Elliott & Partington, 2018).  Thereby, under the rationale of giving priority to allies over rivals, it is expected that a country may impose higher import tariffs on its rivals while giving lower tariffs to its allies or even exemptions from tariffs via free trade agreements (FTAs). Hence, the combination of the internal public policy and the foreign policy determines the restrictions on international trade and FDI at the country level.

However, the shaping of the restriction policy towards international trade and FDI leads to an inherent complicated conflict between the local demands and the global demands of the country, resulting in an unresolved inherent conflict between the internal public policy and the foreign policy towards MNEs at the country level. For example, the Brexit process (The Week, 2019) was involved unprecedented stress and conflicts among the internal players of the UK (D'Urso & Spring, 2019), such as the conflict between the Conservative party and the Democratic Unionist Party (DUP) regarding the ‘backstop’ of Theresa May’s Brexit deal (Leahy & Staunton, 2018), as well as between the internal players of the UK and the external players of the UK, such as the hard negotiation on the Brexit deal between the UK government and the leaders of the EU bloc (Boffey, 2019; Mcshane, 2018). Therefore, the saga of Brexit that was carried out for several years gives a glimpse into the complexity of this inherent problematic conflict (Kentish & Dearden, 2019; The Week, 2019) between internal public policy and foreign policy.

Considering the outlined above, in most of the cases, conflicts exist between the local interests and the foreign interests at the country level when restrictions are imposed on international trade and FDI, resulting in a backfire on the national economy. It can be illustrated through two typical scenarios. The first scenario is when a country imposes high import tariffs on a rival country, still, the local market needs the products from this rival country, resulting in a Win (foreign interests)-Lose (local interests) scenario, such as the negative implications that were created for the USA local producers amid the increase of import tariffs by Trump (Elliott & Partington, 2018; Monadjemi & Lodewijks, 2020). The second scenario is when a country gives priority in tenders to its local firms over foreign firms (Tumwebaze, 2017), which hinder the ability of the country to promote special relations with targeted strategic allies, resulting in Lose (foreign interests)-Win (local interests) scenario. That particularly applies if exists a competition between superpowers to secure special relations with a targeted strategic-ally. Hence, in most cases, restriction policy on international trade and FDI leads to Win-Lose or Lose-Win scenarios between the internal interests and the foreign interests of the country, resulting in a backfire on the national economy.

In light of the above, this study examines how the inherent complicated conflict between the internal public policy and the foreign policy of the country is shaped the government restrictions on international trade and FDI. To address this goal, the study explores how the restrictions on international trade and FDI are implemented according to the Nationalist-Mercantilist Ideology versus the TradeLiberalisation Ideology under the inherent conflict between the internal public policy and foreign policy of the country.

Following this introduction, the next section discusses the main policy approaches towards International Trade and FDI under the Nationalist-Mercantilist Ideology versus the Trade Liberalisation Ideology. The two following sections discuss the motives for imposing restrictions on International Trade and FDI, as well as the direct and indirect tactics for implementing the restrictions on International Trade and FDI. The final sections present the conclusions and discuss policy implications and managerial implications.

Restrictions on International Trade and FDI: The Nationalist-Mercantilist Ideology versus The Trade Liberalisation Ideology

Policy Approaches towards International Trade and FDI

The research literature includes three main policy approaches for the explaining of the government restrictions on International Trade and FDI: The Economic Approach, Behavioural Approach, and International Political Economy (IPA) Approach (Dye, 2016; Nachmias, 1979; Tollison, 1992; Weimer & Vining, 2017). Nevertheless, the implementation of these approaches with regard to the restrictions on international trade and FDI can be conducted under two main ways of thinking: The Nationalist-Mercantilist Ideology (Ali, 2017; Da-yang, 2019; Reznikova et al., 2018; Smith, 1976) (e.g. America First (Cozzolino, 2018) and Brexit) and the TradeLiberalisation Ideology (Winters, 2004) (e.g. EU bloc). Hence, the Nationalist-Mercantilist Ideology puts emphasis on the local market over foreign firms (Ali, 2017; Da-yang, 2019; Reznikova et al., 2018; Smith, 1976) based on the Mercantilism (LaHaye, 2017; Mun, 1895), while the Trade Liberalisation Ideology puts emphasis on international trade and FDI over the local economy (Winters, 2004) based on the ‘Comparative Advantage’ of Ricardo (Balassa, 1965; Ricardo, 1891; Watson, 2017). Nonetheless, paradoxically, each ideology, the Nationalist and the Liberalisation may find justifications for implementing their agenda based on each of the three main approaches. For example, a restriction policy of one country may reflect the combination of Economic Approach and Nationalist-Mercantilist Ideology, while a restriction policy of another country may reflect the combination of Economic Approach and Trade Liberalisation Ideology, so the outcome will be totally different. Hence, policymakers shape their restriction policy based on the chosen approach accordingly to their ideology. Even though, it is important to take into account that may exist a dynamic in the chosen ideology in case of a change in government or leadership, such as the significant difference in policy between the Obama administration and the Trump administration regarding international trade agreements, tariffs and trade wars (Gantz, 2018; Monadjemi & Lodewijks, 2020; Stiglitz, 2018), as well as the expected difference in the restriction policy between Trump administration and Biden administration (Lester & Zhu, 2020).

Considering the outlined above, here are the main principles of the three main policy approaches, as follows (Cairney, 2011; Caves, 1996; Dunning, 1997; Dye, 2016; Haslam, 1999; Nachmias, 1979; Stopford & Strange, 1991; Strange, 1997; Tollison, 1992; Weimer & Vining, 2017):

Economic Approach. The economic approach focuses on improving efficiency to maximise the country's income. According to this approach, governments need to develop a policy that distinguishes between local and foreign companies while addressing issues such as taxation, the use of natural resources, and the rules of competition. In many cases, public policy that is based on the economic approach is implemented through the Rational Model (Cairney, 2011; Hastie & Dawes, 2010; Simon, 1955) to maximize the public profit. Accordingly, the best policy should provide maximum benefits compared to the costs of other alternatives. However, the main limitation of the rational model lays in the political factors (e.g. status, power, political actors) (Jacobs & Page, 2005) and cultural factors (Benito & Gripsrud, 1992) that are more problematic for comparing and evaluating in terms of costs and benefits. Thus, any trying to shape ‘optimal’ policy may fail because of the inability to take into account the political and cultural aspects of the alternatives, resulting in ‘political surprises’ when the policy is implemented. Hence, when policymakers impose restrictions on international trade and FDI, then it may be involved with ‘political surprises’ from the internal players (Jacobs & Page, 2005), such as strikes or even fallen government amid controversial policy, as well as ‘geopolitical surprises’ from the external players, such as imposing restrictions by rival country too. 

Behavioural Approach. The behavioural approach weights the electoral aspects that may affect the attitude of governments towards certain topics that shape the policy. Accordingly, the government is supposed to limit MNE activities at the national level by giving priority to local companies over foreign ones because MNEs have a limited influence on the results of the national elections. For example, Trump was based his first presidential campaign ‘America First’ on the behavioural approach (BBC, 2016) because of the prediction that this suggested policy will allow him to win the presidential election. However, the second presidential campaign of Trump ‘Make America Great Again’ was failed to give him a second victory (Blumenthal, 2021). One of the reasons for this failure was the restriction policy of ‘America First’ towards international trade through higher import tariffs that have led to trade-wars, resulting in a backfire on the economy and labour market of the USA (ABC News, 2021), especially in the long-run (Kennedy, 2019). The behavioural approach can be implemented through various models, such as the Public Choice Model (Congleton et al., 2019; Rowley & Schneider, 2008). This model assumes that all political players (e.g. voters, candidates, legislators, government and parties) try to maximize their personal benefits, politicly and economically. Thus, the public policy that is proposed during the election is based on the policy that will get larger support from electors in order to win the election, regardless of the personal view of the candidates. For example, the premiership campaign of Boris Johnson that was based on ‘No-Deal’ policy and even on the slogan ‘do or die’ (Economist, 2019) was done to maximize the voters’ support, regardless of the economic outcome of ‘No-Deal’. The campaign of ‘No-Deal’/‘do or die’ was run despite that it was clear to everyone that the UK economy will damage critically under ‘No-Deal’  (Cowburn, 2019) alongside the risk of fast dissolution of the Union (UK-union) due to the resistance of Scotland to ‘No-Deal’ (Gamp, 2019).

International Political Economy Approach (IPE).  IPE approach looks at the sovereignty of the nation-state and the geopolitics order. Thereby, the IPE approach focuses on the undermining of nation-state sovereignty by MNEs alongside the increase in MNEs' power at the expense of the country. Consequently, the IPE approach assumes that the nation-state must formulate a policy to preserve the national strategic interests against the dominance of MNEs, such as preserving the national natural resources or technological strategic assets. The IPE approach also highlights the importance of conducting negotiations with MNEs before they perform FDI inward in the host country. Even the concept of internalisation advantages of the OLI (Ownership, Location, Internalisation) framework of Dunning (Dunning & Lundan, 2008) is similar to the concept of the IPE approach (Haslam, 1999) because it assumes that both governments and MNEs try to maintain the political power of their assets, which can be resulted in open conflict between the government and MNEs in case of contradicted interests (Dunning & Lundan, 2008), especially under complex geopolitics (Fouskas, 2014). For example, the Trump administration argued that Huawei with its 5G wireless networks allows the Chinese government to spy on the USA and its allies through the backdoor of 5G (Dahlman et al., 2018; Lysne, 2018). Thereby, in 2019, the Trump administration declared an order of national emergency that allows imposing commerce restrictions on foreign corporations that deal with ICT to prevent exploitation of security vulnerabilities in the USA. Besides, on the same day, the USA added Huawei to the USA’s list of commerce restrictions to prevent its ability to perform commerce with USA companies (Kuo & Siddiqui, 2019). Trump administration even demanded from the USA’s allies to restrict commerce with Huawei with regards to 5G (Venkataramakrishnan, 2019; Klesty, 2019). Hence, the Huawei case has led to open conflict at the global level (Pearson, 2019; Shirbon & Holden, 2019) without any prediction if and when this conflict will end.

Motives for Restrictions on International Trade and FDI

Motives for Import Restrictions. Import restrictions are intended to protect local industries amid the concern that local companies will struggle to compete with foreign companies (Gerden, 2010). For example, the policy of ‘America First’ aimed at increasing import tariffs (Politi & Hollinger, 2019) in order to protect the USA's national production by reducing competition from foreign competitors (Al-Jazeera, 2019), such as the higher import tariffs that were imposed on goods from China by Trump administration (Chapman, 2019; Monadjemi & Lodewijks, 2020). Furthermore, import restrictions may encourage indirectly FDI inward through the establishment of manufacturing plants that will supply products to the local market instead of costly imported products due to high import tariffs. That's based on the rationale that if an MNE can't sell de facto its products in a host country due to high import tariffs, then it may lead the MNE to establish a production plant in the host country to bypass the high import tariffs. Moreover, import restrictions are also imposed in monopoly industries that are still considered as a ‘market failure’ (Lall, 1995). Besides, it is implemented in weakened industries to avoid collapsing of local companies if the industry will open to global competition (Lall, 1995).

Motives for Export Restrictions. Export Restrictions are motivated by a variety of reasons. Firstly, governments impose export tariffs to preserve natural resources, rare resources and fortune resources (Korinek & Kim, 2011; Mancheri, 2015). For example, China uses export tariffs to restrict the export of rare materials in order to preserve them, but at the same time, to increase their market prices worldwide (Crowe, 2019; Mancheri, 2015; Qin, 2012; Stevenson, 2018). Secondly, maintaining a high price level by determining export and production quotas, such as the oil quotas that are set by the Organization of the Petroleum Exporting Countries (OPEC) to preserve the high market price of the oil (Garavini, 2019). The combination of an export quota and production quota is based on a manipulation of supply and demand by limiting the supply through quotas to raise the market prices, and as a result, it's lead to higher demand because of the limited supply. However, overusing export quotas can undermine market stability, such as the severe energy crisis in the 1970s following using this tactic by OPEC (Griffin, 1985; Garavini, 2019). Thirdly, governments impose export tariffs to take advantage of the export activity to collect more taxes from local companies when they sell their products in host markets. Fourthly, export restrictions may be also motivated by the government's political agenda, such as to weaken the political power of rivals and enemies.

Motives for FDI Restrictions and Barriers. The literature suggests that government use various types of FDI restrictions and barriers (Agosin & Machado, 2005; Contractor, 1990; Dicken, 1998; Dunning, 1993; Dunning & Lundan, 2008; Hardin & Holmes, 2002; Ghebrihiwet & Motchenkova, 2017; Gorg, 2005; Lall, 1995; Makino & Beamish, 1998; Mattoo et al., 2004), that are imposed regarding all industries or certain industries (Agosin & Machado, 2005). That’s done to control the entry of FDI inward to host markets, or vice versa, to control the exit of FDI outward from host countries to home countries, or even from host countries to other host countries, especially in cases of ‘Capital Flight’ (Barnard & Luiz, 2018). It is also done to control the operations of MNEs in host markets by creating various mechanisms, such as controlling the decision-making of MNEs by appointing trusted local managers (Dunning, 1993).

Implementation of Restrictions on International Trade and FDI: Hard-Direct Tactics Versus Manipulative-Indirect Tactics

Governments can use direct and indirect tactics to implement restrictions on international trade and FDI (Aktas et al., 2007; Bagwell & Staiger, 1997; Bao & Qiu, 2010; Brander & Spencer, 1985; Corbo, 1997; Crandall, 1984; Das & Donnenfeld, 1989; Dunning, 1993; Dunning & Lundan, 2008; Fischer & Serra, 2000; Fredriksson, 2006; Gerden, 2010; Globerman & Shapiro,1999; Hamilton, 2017; Hardin & Holmes, 2002; Hicks & Kim, 2012; Idrisov & Sinelnikov-Murylev, 2012; Ghebrihiwet & Motchenkova, 2017; Gorg, 2005; Korinek & Kim, 2011; Li & Beghin, 2017; Liu & Maughan, 2012; Lynam, 2009; Makino & Beamish, 1998; Mancheri, 2015; Marette & Beghin, 2017; Monadjemi & Lodewijks, 2020; Roy & Pattnaik, 2004; Schwartz & Clements, 1999; Shivakumar, 1993; Tokarick, 2006; Tumwebaze, 2017; Vollrath & Hallahan, 2012; Wong et al., 2014; Yoon & Choi, 2018). However, the combination of the policy approach and the ideology of the government determine the types of restrictions that will be used by the government. The direct restrictions can be defined as ‘Hard-Direct Tactics’, while the indirect restrictions can be defined as ‘Manipulative-Indirect Tactics’. Paradoxically, the Nationalist-Mercantilist Ideology more uses ‘hard restrictions’ (Cozzolino, 2018), especially against rival countries to protect its inner electorates circle and strategic allies, such as ‘America First’ of Trump (Cozzolino, 2018). Conversely, the Trade Liberalisation Ideology uses more ‘manipulative restrictions’ to protect the local market in some way, but at the same time, to keep liberalisation in international trade and FDI with other countries. Conversely, the Trade Liberalisation Ideology uses more ‘manipulative restrictions’ to protect the local market in some way, but at the same time, to keep liberalisation in international trade and FDI with other countries. In other words, the Nationalist-Mercantilist Ideology uses hard restriction tactics that defiantly distinguish between who are friendly allies and who are rivals, such as the ‘America First’ policy of Trump (Chapman, 2019). In opposite, the Trade Liberalisation Ideology uses soft restriction tactics in trying to keep good relations with everyone namely, the local business community, friendly allies, far allies and rivals, such as the style of Germany under Merkel's leadership. To illustrated it, under Trump, in 2019, the export of the USA to Russia was 5.8 Billion US$ and Russia was 39th in the top countries of USA export, while respectively the export of Germany to Russia was 30.5 Billion US$, yet Russia was 13th in the top countries of Germany export (COMTRADE, 2019). Thereby, relatively, the export of Germany to Russia was much bigger compared to the USA. Note, the EU bloc acts as a ‘single country’ in relation to international trade agreements, still, each EU country has a different approach to far allies/rivals, resulting in differences between the EU countries regarding their top export countries. For example, in 2019, among the EU countries, China was 3th in the top export countries of Germany, and respectively, 9th for the Netherlands, 14th for Portugal, and 20th for Poland.

Hard-Direct Tactics for Implementation of the Nationalist-Mercantilist Ideology

The literature suggests several direct restrictions on international trade and FDI, as follows (Corbo, 1997; Crandall, 1984; Gerden, 2010; Hamilton, 2017; Idrisov & Sinelnikov-Murylev, 2012; Gorg, 2005; Korinek & Kim, 2011; Liu & Maughan, 2012; Mancheri, 2015; Roy & Pattnaik, 2004; Shivakumar, 1993; Wong et al., 2014):

Import and Export Tariffs. Import and export tariffs (Chao et al., 2001; Corbo, 1997; Cozzolino, 2018; Idrisov & Sinelnikov-Murylev, 2012; Roy & Pattnaik, 2004; Tokarick, 2006; Wong et al., 2014) are considered as the most ultimate direct ways to impose restrictions on MNEs activities. Import tariffs allow giving priority to local companies over foreign ones by increasing the prices of foreign products when they enter the local market as imported goods (Politi & Hollinger, 2019). In other words, import tariffs create manipulation in the competition in the local market by forcing de-facto the local customers to buy local products because the prices of foreign products are higher due to the import tariffs. Import and export tariffs can be determined in relation to certain sectors (Chao et al., 2001) or certain products, still, each sector or product may be subject to a different tariff (Li & Resnick, 2003). Nonetheless, a tariff can be set as a percentage of a product or as a constant sum of a product. For Example, Trump implemented this direct tactic by increasing the import tariffs as part of his ‘America First’ agenda (Chapman, 2019; Elliott & Partington, 2018; Monadjemi & Lodewijks, 2020; Politi & Hollinger, 2019), which is rooted in the Mercantilism economic doctrine (LaHaye, 2017; Mun, 1895).

Import Quotas. Imposing import quotas allows limiting the quantities of foreign products that enter the host country (Crandall, 1984; Hamilton, 2017) with the aim of protecting the national industries against fierce competition from foreign companies. In other words, imposing import quotas control the product supply in the local market because it leads to a situation in which a smaller quantity of similar products is offered in the local market at higher prices because of the competition limitation that is created by the import quotas. In other words, imposing import quotas control the product supply in the local market.

Export Quotas. Imposing import quotas allows limiting the quantities of foreign products that enter the host country (Crandall, 1984; Hamilton, 2017) with the aim of protecting the national industries against fierce competition from foreign companies. In other words, export quotas lead to higher prices of goods in host markets due to the control over product supply worldwide, such as OPEC that uses this tactic to maintain the oil at a higher price in the global markets (Griffin, 1985; Garavini, 2019).

FDI Entry Restrictions and Barriers. FDI entry restrictions and barriers are imposed by host governments to control the entry of FDI inward aim at protecting the local market at the economic, strategic, and ideologic levels. Firstly, many governments do not allow to conduct FDI inward in industries that are considered as strategic to the national economy, such as telecommunication, defence (Hardin & Holmes, 2002), banking, and aviation. That's done because of the concern that MNEs may control strategic industries or get access to sensitive industries in the host country (Agosin & Machado, 2005; Dicken, 1998). Secondly, entry restrictions and barriers can be imposed in certain industries (Agosin & Machado, 2005), especially in vulnerable industries that lack the ability to compete with foreign rivals. Thirdly, governments can restrict MNEs' activities only to specific geographical areas, such as peripheral areas or underdeveloped areas because of their need for rapid development that may not occur without the boost of MNEs activities. Fourthly, governments even restrict the entry of FDI inward due to ideological grounds that are based on a ‘closed economy’ under government control, such as the case of the communist regime (Kornai, 1992) in China and Cuba.  

FDI Exit Restrictions and Barriers. FDI exit restrictions and barriers refer to various exit restraint measures, such as restrictions on return capital to a home country, a high tax on return profits to a home country (Dunning & Lundan, 2008), and minimum of a time period for keeping the investment in a host country before the ability to return it back to the home country. Firstly, FDI exit limitations aim at reducing the 'capital flight' (Barnard & Luiz, 2018; Pradhan, 2009) from the host country, but some home countries also impose exit limitations on FDI outward, especially during crises and instability problems. Secondly, FDI exit restrictions and barriers aim at ensuring that MNEs will not transfer capital and profits out of the host country in a short period after the FDI inward took place, especially in cases when grants and loans were given to foreign companies to conduct FDI inward (Gorg, 2005).

FDI Ownership Restrictions. FDI ownership restrictions (Ghebrihiwet & Motchenkova, 2017; Makino & Beamish, 1998) refer to the limitation on a maximum percentage of foreign ownership that MNEs can hold in national companies in a host country with the aim of preserving the ownership share of state-owned companies. That's implemented in host countries that hold a 'mixed economy' or a 'command economy' (Makino & Beamish, 1998). Ownership restrictions are also implemented in locally owned companies in national strategic industries (Contractor, 1990). Hence, under FDI ownership restrictions, MNEs can't establish a wholly-owned site in the host country without a local company. That’s mean that in the case of FDI ownership restrictions, MNEs can enter the host country only through entry modes of Mergers & Acquisitions (M&As) or joint ventures (Agosin & Machado, 2005; Makino & Beamish, 1998; Mattoo et al., 2004).

Manipulative-Indirect Tactics for Implementation of the Trade Liberalisation Ideology

The liberalization trend (Tatum, 2010) alongside the agenda of the World Trade Organization (WTO) (WTO, 2019) during the last decades, urge governments to reduce and even eliminate the direct restrictions on international trade and FDI. Paradoxically, it has led to the creation of indirect tactics of restrictions (Bao & Qiu, 2010; Li & Beghin, 2017; Lynam, 2009; Shivakumar, 1993; Sykes, 1989) in trying to protect in some way the local market against foreign competitors that have started to operate freely in the local market following the liberalisation in international trade and FDI. However, WTO as part of its up-to-date agenda has also started to demand from its members to avoid indirect restrictions, such as technical barriers to trade, and government subsidies (WTO, 2019). Consequently, many governments have started to implement controversial manipulated restrictions without declaring that these indirect tactics are de-facto restrictions on international trade and FDI. Worse, when WTO revealed and curbed new indirect restrictions that were implemented by its members, then the governments in response have developed new ‘creative’ indirect restrictions to protect the national industries. Notably, there are many indirect ‘creative’ restrictions that governments implement to restrain the activities of MNEs in the local market. Nonetheless, in many cases, it is very difficult to relate them to restrictions on international trade and FDI because they are implemented through local technical standards or requirements for local certifications. Given that, any local technical standards or certifications that hinder foreign firms from operating in the local market can be considered as indirect restrictions on international trade and FDI.

Considering the above, the literature refers to various indirect restrictions, as follows (Aktas et al., 2007; Bagwell & Staiger, 1997; Bao & Qiu, 2010; Brander & Spencer, 1985; Fischer & Serra, 2000; Hicks & Kim, 2012; Ghebrihiwet & Motchenkova, 2017; Li & Beghin, 2017; Lynam, 2009; Makino & Beamish, 1998; Marette & Beghin, 2017; Schwartz & Clements, 1999; Shivakumar, 1993; Tumwebaze, 2017; Vollrath & Hallahan, 2012; Yoon & Choi, 2018):

Government Subsidies. Government subsidies (Yoon & Choi, 2018) refer to financial assistance that is given to local companies by governments to advance the export of local goods worldwide at competitive prices (Schwartz & Clements, 1999; Shivakumar, 1993; Sykes, 1989). Hence, under conditions of subsidies, the production and operation of a company are not carried out only from the funding of the firm but also from external government funding. Given that, subsidized local companies can be considered de-facto as unprofitable companies because they cannot compete in the global market without getting government subsidies. Consequently, Government subsidies lead to imperfect competition that is reflected in higher profits and bigger market share for subsidized local companies over their foreign competitors (Brander & Spencer, 1985). Nevertheless, according to the WTO, governments should avoid giving subsidies to local companies in most sectors (Lynam, 2009; Yoon & Choi, 2018). Thereby, governments that provide subsidies to local companies take the risk of involvement in trade disputes because subsidies are prohibited under WTO (Yoon & Choi, 2018). Notably, subsidies indeed consider indirect tactics, still, it’s easier to reveal them compared to other indirect tactics because of the government funding that is mentioned in the annual reports of the firms. Consequently, governments have started to develop alternative indirect tactics that are more difficult to reveal as restrictions on international trade and FDI.

Priority to local companies. Many countries give priority to local producers or service providers in governmental/public tenders (Tumwebaze, 2017) by determining criteria that give preference to local companies over foreign ones. That's implemented through visible criteria in tenders that explicitly give priority to local firms, but it is also implemented through manipulative criteria that require conditions that exist only in local products. In other words, the conditions of the tender are written according to local features to create winning for a local firm.

Priority to Friendly Allies. Governments give priority to friendly allies through a reciprocal activity of international trade and FDI (Bagwell & Staiger, 1997; Hicks & Kim, 2012; Vollrath & Hallahan, 2012) that is implemented via barter or by offsetting the volume of activity between the friendly countries. Thus, a reciprocal mechanism is a de-facto indirect tactic that creates a disadvantage to MNEs from other countries that lack this mechanism.

Local Standards. Local standards have developed over the years as a smart alternative for creating indirect restrictions on international trade and FDI to protect the local market (Das & Donnenfeld, 1989; Fischer & Serra, 2000; Marette & Beghin, 2017). This indirect tactic is based on the rationale that if a government determines high standards (e.g. Technical or environmental) or standards according to local products, then it may hinder the activities of some MNEs that their products and services don’t meet the required standards (Marette & Beghin, 2017), resulting in reducing the scope of foreign competitors in the local market. Importantly, this tactic aims particularly to restrict the entry of cheap foreign products because usually they less meet quality standards, which implements particularly through technical standards (Bao & Qiu, 2010; Li & Beghin, 2017). Besides, even the process testing to approve technical standards of foreign products uses as a tool to hinder the activities of MNEs in the local market by creating a long costly bureaucratic process that deters many MNEs from trying to get the required technical certificates. This tactic is also implemented regarding service providers by creating a demand for passing a local test in the local language in order to hire experts in the local market. That’s limits de-facto the ability to hire foreign experts in the local market, and as a result, fewer foreign service firms operate in the local market, especially those who rely on the relocation of foreign experts from the home country.

Antitrust Authority. The antitrust authority (Baker, 2019; Harrington, 2004) in a country is responsible for preserving free competition by preventing the creation of market power through restrictive arrangements between competitors that may hinder free competition. The antitrust authority also aims to prevent the creation of monopolies or cartels (Harrington, 2004). Regarding FDI activity, the antitrust authority is responsible to restrict international M&As (Motta & Vasconcelos, 2005), especially international horizontal M&As that have the potential to hinder the free competition (Evens & Donders, 2016; Rozen-Bakher, 2018) because it decreases the number of competitors in the local market (Homberg et al., 2009). However, regardless of preserving the competition, antitrust authority (Harrington, 2004) has started to serve in many countries as a tool to restrict the entry of MNEs to the local market. That's done by imposing intentionally rigid conditions to approve international M&As (Dunning & Lundan, 2008) to protect privileged national companies (Aktas et al., 2007).

FDI Operational Restrictions. FDI operational restrictions (Fredriksson, 2006) refer to operational restrictions when FDI Inward is conducted in the host country, such as the demands that the MNE will purchase local raw materials over imported ones or will employ local workers over foreign workers from the home country (Dunning, 1993; Dunning & Lundan, 2008). The operational restrictions can also include demands that the MNE will invest in R&D in the host country or that the MNE will train a local workforce (Dunning, 1993; Dunning & Lundan, 2008).  The main rationale of these indirect restrictions is that the host country will benefit not only from the entry of FDI but also from creating new jobs, new income, as well as from knowledge transfer (Bresman et al., 1999; Dunning, 1981, 1988; Greenberg et al., 2005; Oliveira et al., 2003), technology transfer (Mattoo et al., 2004; Meoli et al., 2013; Westland, 2008) and innovation transfer (Meoli et al., 2013; Westland, 2008), which is supposed to improve the productivity and performance in the local market (Dunning & Lundan, 2008; Jones & Wren, 2016). However, there are governments that even impose indirect operational restrictions on FDI regarding the MNE's decision-making in the host country. That's implemented by a demand to appoint a local majority for the management board of the MNE that operates in the host country (Dunning, 1993). That's based on the rationale that a majority based on loyal local managers will preserve better the national interests via the decision-making in the management board over a majority based on foreign managers.

Conclusions

The restrictions on international trade and FDI (Aktas et al., 2007; Bao & Qiu, 2010; Dunning & Lundan, 2008; Fischer & Serra, 2000; Fredriksson, 2006; Gerden, 2010; Hamilton, 2017; Hardin & Holmes, 2002; Hicks & Kim, 2012; Idrisov & Sinelnikov-Murylev, 2012; Ghebrihiwet & Motchenkova, 2017; Gorg, 2005; Korinek & Kim, 2011; Li & Beghin, 2017; Liu & Maughan, 2012; Lynam, 2009; Mancheri, 2015; Marette & Beghin, 2017; Monadjemi & Lodewijks, 2020; Roy & Pattnaik, 2004; Tokarick, 2006; Tumwebaze, 2017; Vollrath & Hallahan, 2012; Wong et al., 2014; Yoon & Choi, 2018) have become a controversial topic because of the inherent conflict between the internal public policy (Cairney, 2019) and foreign policy (Alden & Aran, 2016) at the country level. It reflects the conflict of interests that exist in a country between the national local demands and foreign demands of the country. This clash has led to evolving of two opposite ideologies that governments adopt to shape the restrictions on international trade and FDI: The Nationalist-Mercantilist Ideology that gives priority to the local market over foreign activity (Ali, 2017; Da-yang, 2019; Reznikova et al., 2018; Smith, 1976) according to the Mercantilism doctrine (LaHaye, 2017; Mun, 1895), while the Trade Liberalisation Ideology that gives priority to international trade and FDI over the activity of the local market (Winters, 2004) according to the ‘Comparative Advantage theory’ (Balassa, 1965; Ricardo, 1891; Watson, 2017). Hence, this study explores how restrictions on international trade and FDI are shaped and implemented according to the Nationalist-Mercantilist Ideology (Ali, 2017; Da-yang, 2019; Reznikova et al., 2018; Smith, 1976) versus the TradeLiberalisation Ideology (Balassa, 1965; Ricardo, 1891; Watson, 2017; Winters, 2004).

The study analysis suggests that the combination of the policy approach (Economic approach or Behavioural approach or International Political Economy approach) and the ideology (Nationalist-Mercantilist ideology or Trade Liberalisation ideology) determines which type of tactics (Hard-Direct Tactics or Manipulative-Indirect Tactics) governments use to implement their restriction policy towards international trade and FDI. Thereby, the study suggests that the Nationalist-Mercantilist Ideology more uses Hard-Direct Tactics to restrain international trade and FDI, such as imposing import and export tariffs, import and export quotas, FDI entry and exit restrictions and barriers, and FDI ownership restrictions (Corbo, 1997; Crandall, 1984; Gerden, 2010; Hamilton, 2017; Idrisov & Sinelnikov-Murylev, 2012; Gorg, 2005; Korinek & Kim, 2011; Liu & Maughan, 2012; Mancheri, 2015; Roy & Pattnaik, 2004; Shivakumar, 1993; Wong et al., 2014). These direct restrictions are particularly implemented against rival countries to protect the local inner circle, as well as to deter rival countries from entry to the local market, such as the hard-direct restrictions that Trump imposed on China as part of his ‘America First’ agenda (Chapman, 2019). However, paradoxically, the Trade Liberalisation Ideology more uses Manipulative-Indirect Tactics to restrain international trade and FDI, such as giving government subsidies to local firms to improve their global competition position, giving priority to local firms in tenders, giving priority to friendly allies through reciprocal activity, creating local standards including long approval procedure to hinder foreign firms from entering the local market, imposing rigid conditions for the approval of international M&As by antitrust authority, and FDI operational restrictions (e.g. Demands for buying local raw materials or hiring local workers) (Aktas et al., 2007; Bagwell & Staiger, 1997; Bao & Qiu, 2010; Brander & Spencer, 1985; Fischer & Serra, 2000; Hicks & Kim, 2012; Ghebrihiwet & Motchenkova, 2017; Li & Beghin, 2017; Lynam, 2009; Makino & Beamish, 1998; Marette & Beghin, 2017; Schwartz & Clements, 1999; Shivakumar, 1993; Tumwebaze, 2017; Vollrath & Hallahan, 2012; Yoon & Choi, 2018). These indirect tactics use to protect the local market in some way, but at the same time, they try to keep liberalisation in international trade and FDI. The study concludes that the Nationalist-Mercantilist Ideology uses Hard-Direct Tactics that defiantly distinguish between friendly allies and rivals, while the Trade Liberalisation Ideology uses Manipulative-Indirect Tactics in trying to keep good relations with everyone including local business, friendly allies, far allies and even rivals.

Policy Implications and Managerial Implications

The study brings to light several policy implications and managerial implications. Firstly, hard-direct restrictions may lead to a negative impact on the economic prosperity and scope of international trade and FDI (Ghosh et al., 2012; Globerman & Shapiro,1999), such as the policy of 'America First' that was included increasing tariffs and imposing new restrictions and barriers (Elliott & Partington, 2018), resulting in trade wars (Buongiorno & Johnston, 2018; Bouët & Laborde, 2018; Noland, 2017) that backfires on the USA economy (Kennedy, 2019; Washington Times, 2019). Secondly, the dynamic change in restriction policy by governments requires from MNEs to make frequent assessments about the risks that may arise due to changes in restrictions on international trade and FDI, such as the dramatic change in the UK following Brexit (Rawnsley, 2021; The Week, 2019). Thirdly, there are restrictions that significantly deter FDI inward, such as ownership restrictions (Ghebrihiwet & Motchenkova, 2017; Lall, 1995) or operational restrictions as the demand to create a local majority in the management board of the MNE by loyal local managers in order to preserve the national interests via the 'right' decision-making of the management board (Drysdale, 2011; Dunning, 1993; Lall, 1995). Even exit restrictions and barriers deter FDI inward. Still, MNEs are more open to exit restrictions in case of long-term investment in natural resources, while they are less agreeing to take risks of exit restrictions in market-seeking FDI because of the lack of ability to close the activity in case of a significant decline in demand in the host market. Fourthly, import tariffs have negative implications on the global competitive advantages of local companies in the long run because of the limited competition. In other words, on the one hand, import tariffs protect the national industries, but on the other, it is may damage the local market in terms of competition, firm efficiency and the quality of service (Al-Jazeera, 2019). According to the 'Diamond model' of Porter, a market with high demand is supposed to contribute to the global competitive advantage of local firms (Porter, 1990, 2008), while import tariffs limit the market demand because of the limit of competitors that operate in the local market. Thus, under high import tariffs, local industries start to operate as inefficient industries because they don't need to offer low competitive prices to local customers due to the lack of foreign competitors. Conversely, in a market without import tariffs, only competitive firms can survive, which benefits the customers in the long run. Given that, paradoxically, import tariffs can reverse the market to the era of monopolism in terms of high prices and non-quality service. Worse, it can even lead to low investment in R&D because customers have no choice but only to buy the local products, so the local firms don't need to invest in R&D to improve their products. Finally, due to the inherent complex conflict between the internal public policy and foreign policy at the country level, each restriction and barrier has the potential for the creation of negative implications to the national economy, depending on the specific conditions of the country. In other words, imposing a specific restriction in one country may lead to negative implications, while imposing the same restriction in another country may not lead to the same negative implications. Hence, policymakers should be very cautious when they decide to impose new restrictions and barriers to avoid a potential backfire on the national economy.

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