Government Intervention in Trade - Assignment Example

Government Intervention in Trade Name Institution Date Topic: Essay Topic No. 1 Political, economic and cultural motives behind government intervention in trade Introduction The World War 11 highly affected the relations of the countries that were involved and this led to the implementation of trade barriers. Before the war started, many countries encouraged free trade but the emergence of the war changed the relations between the fighting countries. This was the reason why the barriers were put in place. After the war, peace prevailed. Many countries have made an effort to lighten up the barriers by either dropping them completely or changing the terms. Some of the reasons that prompted countries into reducing their barriers are to provide market for their products. Many countries highly depend on exports as the highest revenue generating activity. It is for the search of market for the products especially agricultural products that led the countries to drop some barrier. International trade would also lead to an increase in the economy of countries that give room for it through the introduction of new products and new technology in to the country (Wild, 2012). Despite the reduction of barriers, countries have also maintained some of the barriers in order to restrict trade. Governments are driven by different aspects in putting this restriction which include political, cultural and economic motives. This paper critically discusses the driving forces for the government to intervene in the business sectors and to have control over them. Economic Effect of Trade Barriers The economy of a country highly depends on the trading activities in the country in terms of how they are done, who does them and the benefits and shortcomings of the industries. Industries in a country are basically the initial source of income to the country and for that reason, the government should intervene in order to boost and also protect them. The government therefore uses trade barriers to protect the economy of its country both internally and externally. This is driven by different motives that the government intends to achieve (Amaa, 2000). Governments have retained trade barriers in their countries in order to protect their own industries. If competition is high from both internally and externally, emerging industries will not be competitive enough and may lose their market since they lack efficiency. The government must therefore intervene in order to protect these industries from unhealthy competition until they can stand on their own by maintaining their trade barriers. This is because other countries may take advantage of this policy to dump products that lack markets in their own countries. These products may be sold at a cheaper price than those that are produced internally. Consumers will opt for these cheaper products leaving the home made products unused. This will lead to a fall of the industries. In order to prevent this, the government will intervene to protect its own companies (Himmelberg, 1994). According to Peláez & Peláez (2008), trade barriers limiting the number of companies in a given industries will enable the companies to enjoy their privilege of being the best in the country. These companies earns lots of profit being the best established and having a concrete market for their products. This also gives the company the ability to survive even in harsh economic moments of the country even the other competing industries. Some countries use trade barriers as a mode of raising revenues. Methods of trade barriers such as tariffs imposed on imports and exports give the country a high portion of revenue and at the same time restricting free trade by other countries. Tariffs are imposed on products to make them more expensive thus lowering the profits earned from their trade. This makes the trade a bit hard and thus a better way of implementing trade barriers and restricting trade with other countries (Crane & Larrabee, 2007). When countries are allowed to trade freely, it is more likely to dwell on imports and neglect internally produced products. This costs the government and private businesses a lot of funds when importing these products. These funds could be used to improve on the economy of the country other than being used to buy products from outside. When a government imports more than it exports, it will lead to an unfavorable balance of payment for the country meaning that the government will be spending more that it gains. This will lead to a decrease in the economy of the country and to avoid this, the government has to maintain its trade restrictions (Vorton & Hann, 2010). Political Motives for Trade Barriers Most decisions made in regard to trade by the government officials are usually relative to their personal or political party’s interests or gains. It is to this regard that the government would set rules preventing some kinds of trade or freeing other forms of trade in their country. One of the reasons that drive a certain government to hold on to the trade barriers is in order to protect government funds used to fund internal industries. Most governments usually finance various companies in an industry in its own country. It is therefore the government’s responsibility to protect these companies. Trade barriers will be put in place for the country so that consumers can only depend on locally produced goods thus providing a sufficient market for these goods and earn internally generated income. If trade is left to be free, consumers may opt for imports making industries in that country unproductive. The government will make use of their political powers to make sure that citizens consume home made products and the government financing does not go t waste if the companies do not perform well. In order to cease other governments illegal and unfair trade practices. Some governments usually do this with the need to protect their own industries since free trade will not preserve the market for internal industries. The competition for market between internal industries and foreign industries is termed unfair since the imports and internally produced products struggle for the same market. Illegal businesses can also take place if the government leads a free trade policy. This is because illegal products may find their way into the country. These products may be harmful to the citizens such as illegal drugs, fire arms, explosives and other dangerous products. This is likely to bring about many consequences like wars, infections and even deaths to the citizens. The government therefore uses these barriers to protect its country from all this illegal dealings.. The government usually put on trade barriers in order to protect the national security for the country. This is mainly done by collaboration of the government with industries in its country by either financing their operations or restricting products from other countries in form of imports from being sold in the country. According to Bissa (2009), it is for this reason that the government will protect these industries from external competition that emerges if the trade for these services is left free for other companies either internally or externally. The government can also prevent the exportation of products such as food stuffs and other products whose shortage could bring about a tragedy in the country in case of occurrences such as war, persisting droughts or unfavorable conditions for the production of the products. Most governments have maintained trade barriers in their countries in order to gain influence over other nations. A country that is well developed would tend to restrict trade with other countries in order to maintain their control over other countries which lack this products and can only get them from those countries that are developed. Free trade usually affects employment states in countries especially when countries trade together. After the world war 11, many governments have remained cautious of other subsequent wars happening. The relations between fighting countries have remained unclear. In case of free trade between countries, it therefore means that investors can invest in either country that has no trade barriers. This could pose a challenge in the internal industries in terms of employments and labor matters. Citizens of a country will relocate to countries where they are being well paid and industries will source for expertise from other countries leaving the citizens of that country unemployed. Other counties may also source for cheap labor force from the countries that pay their citizens low incomes. This will leave the other country without enough labor force thus reducing its productivity and this affects the economy of the country. It is for this reason that countries will put these barriers in place in order to protect its citizens and curb the probability of high unemployment levels (Bissa, 2009). Other countries have maintained the differences instilled during WW 11 and have maintained trade restrictions in order to prevent some nations from trading with them. These barriers are put in place in order to punish them through the negative effect on their economies and to give them time to change from their illegal behavior and fulfill the requirements of other countries. In this case only specific nations are prevented from trading with the country that puts such barriers and this could be as a result of offences committed by such nations. These sanctions are bound to last as required by the country’s government or until it realizes that the punishment to this other country is enough (Aharoni, 1997). Cultural Motives If a country exercises free trade, it is bound to accommodate both people and products from other countries under cultural grounds. Through these interactions, new customs and behaviors have been inherited from new countries and could be of great influence to the citizens. Some influences are termed illegal in various countries. This unwanted behaviors can pose a big threat to the country and for a given country to avoid this, it then implements the trade barriers. Trade barriers have been maintained by various countries due to the laws of the country that govern the industries and citizens of that country. Bar-Joseph (1995) notes that some countries also prohibit some product use and term them as illegal whereas in other countries, same products are legal and their trade is not prohibited. Some of the products which have different legalities in different countries are fire arms, drugs, movies and other activities. This causes the governments of the countries to put on measures of control on the trade so that illegal products may not find their way in to the country. According to Agarwal (2012), Business transactions involving different countries may highly be hindered by communication failure especially when the countries use different languages. For the transactions to take place, either governments or transacting individuals should appoint interpreters and translators to facilitate the transactions. In order to avoid these unnecessary expenses, the government tries to avoid doing business with this other countries thus the trade barriers. Recommendation The implementation of trade barriers in an economy by the government has its advantages and disadvantages. By restricting free trade, countries which are less developed may not increase its technology since access to new technology from other countries may not be allowed due to these restrictions. Countries which majorly depend on other countries for the market for their products such as minerals, agricultural products and other products which lack sufficient market at home may not be allowed to export their products. This will lead to high spoilages and losses to the country. To prevent these high losses, the government may attempt to dump the products in those other countries. This means that the products will be sold at very low prices still making losses. By restricting free trade, there is a likely hood of high unemployment levels since the government may not cater for all the employment requirements of the country and since there will be no new investors who could otherwise provide job opportunities leaving many people unemployment. Trade barriers intended to protect infant industries from unhealthy competition and secure a market share for them may help the company stabilize and develop until it is able to compete with other companies. This objective may not be met because these industries may be reluctant due to lack of intensive competition and once the barriers are withdrawn it will lead to their fall. Trade barriers used as a source of revenue such as tariffs may not raise a lot of revenue as they make imports more expensive and this may make citizens not to buy them. Trade barriers have been used as a policy to maintain and protect the security of a nation. This has worked well for some countries and even though some of the prohibited goods still find their way into the countries. Conclusion In conclusion governments’ intervention in business has both its benefits and shortcomings but the benefits outstand. It is therefore important that the government controls business in a country for the benefit of the country as a whole. What is important is for the government to analytically study the market forces and come up with a viable solution. Small business owners, investors as well as consumers should be left with money in their pockets. The government needs not to be middle market man. Economic planning has to be carried out in an efficient and flawless manner. References Agarwal, P, 2012, The intelligent economist, 5 reasons the government are for trade barriers in international economics, McMillan Publishers, London. Aharoni, Y. (1997). Changing roles of state intervention in services in an era of open international markets. Albany: State University of New York Press. Bar-Joseph, U. (1995). Intelligence intervention in the politics of democratic states: The United States, Israel, and Britain. University Park, Penn: Pennsylvania State University Press. Bissa, E. M. A. (2009). Governmental intervention in foreign trade in archaic and classical Greece. Leiden: Brill. Crane, K. & Larrabee, F. S 2007, Encouraging Trade and Foreign Direct Investment in Ukraine, Rand Corporation, Ukraine. Vorton.J, & Hann.P , 2010,Why governments intervene in international business, McGraw Hill Publishers, New York. Wild.J.J, & Wild. K. L, 2012, International business, the challenges of globalization, (6th edition) , global ed. Upper saddle river, Person prentice hall, New Jersey. Peláez, C. M., & Peláez, C. A. (2008). Government intervention in globalization: Regulation, trade and devaluation wars. Basingstoke [England: Palgrave Macmillan. Amaa, K. O. (2000). Rice marketing in Ghana: An analysis of government intervention in business. Uppsala: Scandinavian institute of African studies. Himmelberg, R. F. (1994). Antitrust and business regulation in the postwar era, 1946-1964. New York: Garland Pub. Read More