Reasons Why the Government Intercepts in Trade - Assignment Example

Running Head: International Trade International Trade Customer name: Institution: Customer’s Course Tutor’s Name 19th April, 2013. Introduction Free trade seems to have many advantages as well as merits for a nation and the nation’s economy. Free trade can lead to competitive economies which will lead to lower prices of goods. On the other hand, governments may at times implement quota and at time raise taxes so as to prohibit export and import. Contrary governments may also be aimed at protecting their young and emerging industries. The questions that linger in most peoples' minds is the reason why governments tend to intervene in trade and yet free trade seems to have numerous advantages. This paper analysis the economic, cultural as well as the political reasons why the government intercepts in trade. Broadly, there seems to three parts that make up the reasons. This paper will be therefore divided into three main parts. The first part will deal with the political reasons and it will aim at discussing how they have an influence on the decisions that the government make. The paper will also discuss the cultural as well as the economic motives and discuss how the governments have an influence and make decisions on intervention. Discussion Governments mainly impose restrictions when it comes to free trade and this is mainly based on three major restrictions and they include economic, cultural and political reasons and at times a combination of all the three factors. On various occasions, governments tend to intervene in trade in instances when they offer the required level of support to the domestic businesses exporting activities (Badrinath & Wahal, 2002). Additionally, governments may at time find it necessary to intervene during the hard economic times or in times when workers are taking actions and they are lobbying their government to reduce the level of imports. Political motives The government of a country tends to make decisions that are related to trade based on various political motives. This is mainly based on the fact that those seeking elective posts will mainly be aiming at pleasing the voters and thus they may be aiming at being re-elected. In most instances trade policies that are purely driven by the political reasons seems to be wiser at the end (Barberis & Shleifer, 2003). The political system of a country can be classified as being the country's system of government. Through the political system of the country an individual can be able to come with the major characteristics of that country. A number of scholars are of the view that the country political system ought to be viewed from two major perspectives. With the first one being based on the level in which a country's government is able to emphasize on collectivism over the notion of individualism (Lehne, 2006). Thus the political system can be divided into two broad categories that is: individualism and collectivism. The core political motives of the government intervention in trading activities may include but are not limited to job protection, preservation of national security, response to other countries unfair and unjust trade practices and also gaining power over other countries (Bhanot & Kadapakkam, 2006). In relation to protection of jobs, governments tend to be agitated by high rates of unemployment in their countries. In relation to all this government tends to play a major and leading role trade when trade seems to be a factor threatening the jobs in their country. For instance, in South America the president of Guyana advocated for the purchasing of locally produced goods instead of purchasing the imported goods in his statement he stated that foreign goods are no better (Su & Wong, 2002). The importers were also asked to act as true patriots and they should therefore bring items that are not useful in the country with the aim of overcrowding with the locally produced goods. Through these governments are usually urged to take certain actions so as to ensure that people do not end up unemployed. The other political motive is the preservation of national security. Companies and industries are considered as being essential aspects of the national security and at times they do receive some protection from the government. This seems to be a true case on both the exports and the imports. Governments at times restrict the imports of certain items for the sake of preserving their national security (Cavusgil, Knight & Riesenberger, 2011). All governments are supposed to have an adequate access to a domestic supply of various items for example fuel, air, weapons, sea and land transportation in instances when war would restrict the availability of these items. In relation to this most countries are looking for oil supplies that would supply them when the war broke up and interrupts the free flow of these items from other countries. There are legitimate national security motives that make it difficult for one to be able to argue against them and most particularly when the motives have the full support of the people of that particular country. Countries tend to protect their major sectors. A country may protect their agricultural sector since countries that imports most of their food supplies could possibly face starvations when wars breaks up (Cavusgil, Knight & Riesenberger, 2011). For example in the soybean industry in china, 80% of the products are usually shipped from America and this makes the Chinese government to have the necessary measures and considerations of their agricultural and food exports and imports. Sporadically, the government tends to have a direct interference in his industry with the aim of protecting the situation from ever worsening. Various governments also take up certain national security reason in the aim of banning certain defence related goods from being exported to other countries. The most industrialized countries have already set up certain agencies which are tasked with the duty of determining whether certain technologies or products can be exported. Some of these products in most instances have a dual purpose in that they can be used for military and industrial applications. Thus the products that have dual use require government approval before they are exported. During the year of the cold war export of items which had dual purpose was restricted and it mostly happened between the Soviet Union and the western powers (Weyland, 2004). Over time countries have reduced the restrictions, but in the recent time the bans seems to be a major concern based on terrorist threats as well as rogue nations that are obtaining the weapons of mass destruction. Another political motive is based on the fact that most governments are responding to unfair trade. A great number of observers are of the view that it seems to be inappropriate for a country to allow free trade within their boundaries while other countries are protecting theirs. In such circumstances if certain governments think that another country is playing unfairly it may at times threaten to also play unfairly if certain indulgences are not agreed upon (Vanic & Martin, 2006). The other political reason is gaining of influence. The governments of the globe largest countries may at times become involved in trade for them to gain influence over the smaller countries. In relation to this country such as Japan had a great deal of influence in Asia. Japan accounts for most of the exports and imports of most of the countries in Southeast Asia and in Asia, and it had also lent these regions a great amount of them in the aim of helping them recover from the financial crises that they were experiencing (Weyland, 2004). Additional countries such as the United States can do anything so as to gain and preserve control over the events in north, central and South America and also on the Caribbean basin (Reimer & Stiegert, 2006). This seems to be a major reason behind the advocating of free trade in countries such as America that receives a lot of support from countries such as the United States. This also seems to be the major reason why the government of the United States has cancelled all relations and most specifically international trade with Cuba. Economic motives Although governments are said to intervene in trade for highly political and cultural motives there also exists a number of economic motives that the government’s intervention in trade. The noteworthy economic motives why countries attempt to have an influence on international trade is mainly based on two reasons with the major one being the protection of infant industries as well as a promotion of a premeditated trade policy. In reality there are three major economic systems (Mishra, 2001). They are command economy, market economy as well as the combination of the two which is commonly referred to as the mixed economy. Based on the protection of young industries, governments need to protect the young industries that are slowly emerging and they need to be protected from global competition and this is mainly so in their development stage until when the industries will be sufficiently competitive in the global markets (Menza, 2000). This is mainly argued from the fact that the industries are usually in their steep learning curve. As the industries grow and mature they are able to gain adequate knowledge that it needs so as to be more efficient, innovative and competitive. The other economic reason is related to pursuit for development of a strategic trade policy. The intervention of the government can assist companies for them to be able to take advantage of their economies of scale and being the fort movers in a certain industry. A strategic trade policy mainly leads to an increase in national income of a country. It has been noted that the strategic trade policies have helped countries such as South Korea in building of global conglomerates that acted as a dwarf for their competitors. The companies received a number of subsidies from the government and they at times receive low cost financing (Huang, 2004). Cultural motives Countries often place trade restriction rules in services and goods with the aim of achieving certain cultural objectives with the major one being the protection of their national identity. Trade and culture seemed to be intertwined in a way and each of them has an influence on the other. Cultures of certain people are watered down or altered by exposure to certain products and people and their cultures. When customers buy certain products and goods from other countries, they do not only buy those products and goods but they in a way buy the cultures of those nations (Dong, Marsh & Stiegert, 2006). The culture here may also include the preference as well as the consuming habits of those individuals. When culture is termed as being a major threat to the exceptional culture if the imported countries, governments may be forced to make restrictions on such countries. Unwanted cultural impact in a country can be a major distress and can at times cause governments to block the importation of goods or services that it believes are destructive to their culture (Dolowitz & Marsh, 2000). Thus one of the major cultural reasons why government intervenes in trade is to curb cultural influence. Definitely countries such as the United States are viewed as being a major threat to the national cultures of other countries around the world. This is mainly based on the global strength that the country has over all other nations in the world in relation to media, entertainment and consumer goods (Dennis & Strickland, 2002). This product seems to be visible to almost all consumers in the world and this mainly leads certain groups to make intensive efforts of the governments to produce their products from cultural influence. Based on the fact that expression of protectionism in most instances receives a lot of publicity and the domestic producers also finds it easy to team up and join in the various calls of protection from their national governments. In addition, most multinational organizations that are originally from the United States seems to have assimilated and shaping the world through their use of standardized goods and also based on their corporate culture (Levicfaur, 2005). Another good example of the cultural motive of restrictions of free trade is related to language. English seems to be the most widely recognized language in the world. In relation to this student who are studying in china are supposed to pass college English test for them to be able to acquire their bachelor’s degree. Thus the young people are becoming addicted to the American culture and they end up being restricted from their traditional Chinese culture (Campbell, 2000). Conclusions From the above discussion, the paper fully looks into the three motives that mainly make governments to intervene in the trade. They include the political, cultural and economic reasons. The core political motives of the government intervention in trading activities may include but are not limited to job protection, preservation of national security, response to other countries unfair and unjust trade practices and also gaining power over other countries. The economic reasons are protection of young industries and the development of strategic policies. While the language and loss of culture identify are in the cultural motives. Governments ought to weigh the costs as well as the benefits of the motives so as to make the right decisions when it comes to intervention in trade. References Badrinath, S. & Wahal, S. (2002). Momentum trading by institutions. Journal of Finance 57, 2449–2478. Barberis, N. & Shleifer, A. (2003). Style Investing. Journal of Financial Economics, 68, 161-199. Bhanot, K. & Kadapakkam, P. (2006). Anatomy of a government intervention in index stocks: Price pressure or information effects?. Journal of Business 79 (2): 963–986 Campbell, J. (2000). Asset Pricing at the Millennium. Journal of Finance 55, 1515–1567. Cavusgil, S., Knight, G. & Riesenberger, J. (2011). International Business: The New Realities. New Jersey: Prentice Hall. Dennis, P. & Strickland, D (2002). Who blinks in volatile markets, individuals or institutions?. Journal of Finance 57, 1923–1949. Dolowitz, D & Marsh, D. (2000). Learning from abroad: the role of policy transfer in contemporary policy making governance. An international journal of policy and administration, 13(1), 5-24. Dong, F., Marsh, T. & Stiegert, K. (2006). State trading enterprises in a differentiated environment: The case of global malting barley markets. American Journal of Agricultural Economics, 88 (1), 90-103. Huang, H. (2004). The Chinese stock market and macroeconomic management. Macroeconomic Management 2, 39–41. Lehne, R. (2006). Government and Business: American political economy incomparativeperspective.Washington, DC: CQPress. Levicfaur, D. (2005). The global diffusion of regulatory capitalism. Annals oftheAmericanAcademyofPoliticalandSocialScience.598: 12-32 Menza, J. (2000). Political sociological models of the U.S. New deal. Annual Review of Sociology, 26, 297-322. Mishra, V. (2001). Fiscal deficits and fiscal responsibility act. Economic and Political Weekly, 36(8), 609-611. Reimer, J. & Stiegert, K. (2006). Imperfect competition and strategic trade theory: Evidence for international food and agricultural markets. Journal of Agricultural and Food Industrial Organization, 4 (6). Su, Y. & Wong, R. (2002). The impact of government intervention on stock returns: Evidence from Hong Kong. International Review of Economics and Finance 11, 277–297. Vanic, M. & Martin, W. (2006). Implications of agricultural special products for poverty in income countries. Mimeograph: World Bank. Weyland, K. (Ed.). (2004). Learning from foreign models in Latin America policy reform. Washington, DC: Woodrow Wilson Center. Read More