Introduction
Trade policies are certain agreements and rules that apply to international trade. This policy regulates what goods and services, and on what basis, can be exported or imported to countries, depending on the established agreements between their governments. Each country has its trade policy, which, among other things, sets tariffs, taxes, and quotas. Trade between countries significantly impacts the macroeconomics and international financial markets and the country’s economy that imports or exports goods and services. However, certain restrictions may restrict trade between countries. Therefore, this study will show what advantages international trade has and what nuances of trade policy companies need to consider to enter the international market.
Gains from Trade
In almost any field, some companies and countries have an absolute advantage since they can produce more goods and services at a higher quality level than other producers in the industry. For example, the United States has long had an absolute advantage in technology and communications at the expense of specialists from Silicon Valley. However, this trend has changed, and the absolute advantage of the United States in this area has become comparative. The Sony and Microsoft companies that produce the PlayStation and X-box are still among the leaders in the gaming industry. However, the gaming market in other countries is actively developing, and one example is Brazil.
The video game market is one of the fastest developing and growing worldwide. According to Statista (2021), by 2025, the global value of the gaming market will be about $269 million. At the same time, the sphere also demonstrates stable general growth trends (Figure 1). In this regard, investing in the gaming industry and international trade in services in this area can mutually benefit countries. For example, it is possible to develop mutually beneficial trade relations between Brazil and the United States in the game market. Consumer demand for gaming content in Brazil is growing every year, and the country is ranked 10th in terms of the profitability of the gaming industry (Key insights into Brazilian gamers, 2022). Therefore, international trade between Brazil and the United States could be a source of stable income for the PlayStation and X-box, positively impacting the Brazilian economy through tariffs and taxes and positively impacting the international economy.
Trade Restrictions
Most often, the primary constraint on international trade is the country’s policy, which seeks to protect the interests of local companies and workers. A protectionist policy involves imposing restrictions on importing goods and services to provide more opportunities for the development and growth of local businesses. However, Borchert et al. (2017) argue that the absence of a protectionist policy can positively impact a country’s economy. According to researchers, this approach “can contribute to a more competitive market structure” (Borchert et al., 2017, p. 649). A high level of competition will increase the quantity and quality of produced goods and services due to the additional motivation of companies. However, this approach is not always successful, as it can lead to the fact that the company’s income from international sales will be less than the amount of taxes and tariffs, which will lead to losses for the company.
Furthermore, it is worth noting that the goods and services of foreign companies have a higher price than local producers. It happens due to imposing taxes and tariffs on goods and services. As a result of rising prices for imported goods, most buyers prefer local counterparts at a better price. In addition, a quota limits the total amount of goods that can be imported into the country.
Analysis
Brazil and the United States have pretty developed trade relations, and in 2019 trade between these countries was estimated at $105.1 billion (Office of the United States Trade Representatives, n.d., para. 4). However, US companies that seek to develop international trade with Brazil must take into account some factors. First, it is the country’s policy regarding the import of goods and services. Brazil has an Administrative Council for Economic Defense (CADE), which, among other things, controls the number of companies represented in the sector and regulates competitive relations between them. For this reason, the X-box could not appear in the Brazilian gaming market for a long time since the PlayStation was already introduced. After lengthy negotiations, CADE allowed Microsoft to enter the Brazilian gaming market. However, the presence of two large companies in the market at once in one area can lead to losses for all parties. In such circumstances, the consumer will likely choose a third party to obtain the necessary services. In this case, none of the companies will receive the desired profit, and as a result, the Brazilian economy will not receive the due taxes on the goods sold.
Moreover, Brazil has local game content development companies that are more familiar with the target audience and can meet their requirements. Moreover, in recent years, the number of companies producing quality gaming content in Brazil has grown significantly. In this regard, the demand for imported services in the gaming market may fall. Ultimately, international trade becomes unprofitable for some companies due to high tariffs and low profitability. For example, Nintendo pulled out of the Brazilian market a few years ago due to high taxes, competition, and a low return on investment.
Although Sony and Microsoft develop games for stationary and portable devices, they concentrate more on console games. However, in Brazil, the majority of consumers prefer mobile games (Figure 2). One option would be to engage local experts to develop content jointly that will meet the consumer’s needs. Moreover, this approach also benefits all parties and the global economy by creating new jobs. Furthermore, it is necessary to consider the country’s trade policy and trade agreements between Brazil and the United States. Therefore, for successful international trade with Brazil, the best option for Sony and Microsoft would be to collaborate with local companies and professionals. It will help create a unique product for export and ensure the profitability of international sales.
Conclusion
Thus, even though trade relations between Brazil and the United States are regulated and are among the most profitable for both countries, trade policy has specific nuances. First, Brazil imposes certain restrictions on importing goods and services to encourage the development of local companies. Certain areas have reasonably high competition due to local producers so the consumer will be less interested in the goods and services of international companies. In addition, imported goods are always more expensive due to taxes, which makes them even less competitive with the consumer. However, successful trade relations between countries have financial benefits for both parties and benefit the development of macroeconomics and the international market.
References
Borchert, I., Gootiiz, B., Grover Goswami, A., & Mattoo, A. (2017). Services trade protection and economic isolation. The World Economy, 40(3), 632-652.
Key insights into Brazilian gamers | Newzoo gamer insights report (2022). Newzoo. Web.
Office of the United States Trade Representatives (n.d.). Brazil.
Statista (2021). Global video game market value from 2020 to 2025 (in billion U.S. dollars).