The Reason for Government Intervention in International Business - Assignment Example

The reason for government intervention in international business Name University name Course name Instructor Submission date Abstract The paper bases on how the intervention of trade by the government has contributed in reducing trade barriers. It further explains on how political, cultural, and economic motives are included in government’s interventions in trade (Baumol, 1976). Moreover, the paper accounts on the negative and positive impacts on the intervention. It explains how countries gain on this intervention, for instance, how developing nations are favored by the intervention from exploitation by developed countries. It concludes with the expansion of the ways the interventions plays a major role in the international trade. Introduction International trade The international trade is defined as the exchange of goods, capital and services across the international territories or boarders. Generally, in most countries, international trade represents a significant share of GDP (Gross Domestic Product). While the trade has existed throughout much of the history, its social, economic and political importance has been on rise in the recent centuries (Charny, 1989). Free trade Free trade is described as the policy by which the administration does not distinguish against the imports or even intervenes with the exports with the application of tariffs (to imports) or the subsidies (to exports). According to comparative advantage law, the policy allows the trading partners mutual trade gains of services and goods. The reason for government intervention in international business There are three reasons for why the governments compel restrictions on free trade: economic, political and cultural reasons are the three reasons as to why there are restrictions. On occasion, there is national intervention on trade especially when provision of support to their domestic or internal business exporting activities (Margolis, 1982). Further, the government may intervene when the nation is facing tougher economic break down or when workers foyer the government to reduce imports, this happens when the workers feel threatened of losing their jobs or even being eliminated from their position. To add on that, the government intervention in the market through providing information and ensuring the information flows. It then combats the externalities. Thereafter, the government provides public goods and services and then controls a non-competitive behavior by changing the income distribution. The first four reasons are justified for they promote Pareto optimality (efficiently). The 5th reason is justified also when the society desires to guide economy to a certain Pareto optimal resource allocation, the one which is more equitable (Sloan, 1995). Government intervention in markets and trade is aimed at achieving 2 goals which are social equity and efficiency. For this to be attained, the marginal benefits that the society gets for production or consumption should be equal to the production and consumption of marginal costs. It is not easy to judge issues of equity because fair resource distribution is assessed in a very subjective manner. Externalities are classified as costs spill over or as benefits as well. Where there are external costs being incurred the production and consumption levels that the market brings about are always higher than those levels that are socially efficient. More so, the market tends not to provide public goods in an adequate manner. Problems are evident since the external benefits are large when compared to private benefits. With the government not intervening, people would not be stopped from free riding and therefore contributing to these people’s production costs would not be possible. Political motives behind government intervention in trade It is most suited with the government officials often making oriented decisions in trade based on their political party’s interest and sometimes on their personal motives. The main political motive that is responsible for the intervention of government in international trade includes; the preservation of national security whereby the industries are very useful to nations security that often find themselves assisting by giving funds to the government in cases of imports and exports (Wood, 1993). To add to this, responses may be forthcoming because of the unfair trade practices that the other countries are propagating. Many economists argue that free trade is never fair especially when one of the countries is out to protect its own industries through the use of tariffs and quotas. Such countries may also have the motive of having political influence on their trade partners. In such cases powerful and dominant countries go for trade relations with smaller or less powerful countries so that they can gain influence over them (Weinstein, 1996). A good example is that of the US. In the past one century the US has been establishing trading relations with Caribbean and South American countries. These nations have a huge dependence on the trade that they get from the United States. If political relationships are disrupted in any way, then the business activities between the US and its trading partners will be reduced considerably. Finally, there also exist economic motives. Governments intervene in trade so that they can give protection to young industries. The infant organizations need government protection from the international competition during the developmental phases until they are sufficiently competitive globally. The motives are important because most business needs time through. According to Rawls (1972), the countries merging industries also need protection from the international competition during the development phase; this is until they become sufficiently competitive and inflate prices. Some of those who strongly believe in strategic trade policy are of the opinion that the intervention of the government can help the companies taking the advantage of economies of scale and first industry movers. However, when the government assists in domestic companies, it can result to inefficiency, higher costs and the trade wars between the nations. Economic motives behind government intervention in trade The utilitarian system has several methods which allows for a lot of space for purposes of economic evaluation. Nevertheless, if every alternative intervention amounts to the same result and one just goes for the cheapest treatment then this is called the ‘cost minimization analysis.’ In such a situation various treatment modalities will have their benefits being taken as the same. Distinguishing between various outcomes is not important. One would only look for differences in cost in order to arrive at the mode of service delivery that is most efficient. When there is a likelihood that treatment options being evaluated can bring about differences in the outcome then it is important to consider consequences and costs all together. One physical unit like the life years saved can be used to measure the outcome from various treatment options. The name given to this is ‘cost effectiveness analysis (CEA).’ For example, outcome differences show themselves through various ways such as physiological, physical and social functioning which makes it necessary to have further analysis. A popular practice that is commonly used in aggregating this scenario into a single index is the preference rating. A good example is the ‘standard gamble method’ or the ‘time trade off method’ both leading to the index known as ‘quality adjusted life years.’ This particular theory is known as ‘cost utility analysis.’ Lastly, cost benefit analysis is the phrase used to refer to the situation whereby out come differences are measured in terms of money with a willingness of paying or accepting procedures. However, there still exists a big controversy whenever a life year has monetary value applied to it. More so, there is still no agreement on if clinical outcome resulting from medical intervention then translated into the value of money can compare to costs measured in money value. More proof can be obtained for this problem whenever the treatment costs are not covered fully by the patients but by those other people benefiting from it in this case the tax payers. In terms of economic evaluation, in most cases CUA and CEA will be applied. The major reason for cost effectiveness analysis has always been the comparison of the value of various interventions in the creation of better health and or extending life. These evaluations have their results summarized in a cost effective ratio method in which the cost of acquiring the health gain is reflected within the denominator. It is the wish of many people to have the ability to create a league table that has a hierarchical order of various programmers and their cost effectiveness since it is possible to establish and know the various diseases although there are mixed opinions on this approach owing to the prevailing conditions. This plays a huge role in cushioning delicate industries from competitors as well as promoting trade policies that are strategic in nature. More so, it covers young industries that require cover from international competitors when they are still developing till they have attained sufficiency in global competition. In a global market that is characterized by competition, the government has no need of improving resource allocation. For example, within the health care market there is a failure of meeting traditional assumptions that are important for competition in the market. Consumer information within the health care system is never perfect because of the complexity and technicality of the products being traded. However it is obvious that economic performance can only grow bigger with increase in company corporate responsibility. Cultural motives behind government intervention in trade Cultural objectives are not achieved in the nation mainly because the government often restricts trade in goods and services. Culture and trade are core-related and greatly affect one another. In the country, the cultures are being slowly altered by exposure to the people and the products of other cultures. However, unwanted cultural influences in a nation can cause great distress hence cause the government to block all the imports that are believed to be harmful. For instance, French countries try to keep their language free of alien English words as hamburger and jeans. Their law prohibits foreign language words from virtually all business and government communications, radio, TV, public announcement and advertising messages whenever a suitable French alternative is available. A select group of individuals that comprise the higher council on French language has worked against the inclusion of such called “Franglais” a phrase in marketing, entails cash flow that act as a brainstorm into commerce and other areas of French culture. Canada is another country making headlines for its attempts to copy the cultural influence of entertainment products that are imported from the United States. 35 percent of music played in Canadian Radio comes from Canadian artists. In fact many countries are considering laws to protect their media for programming because of cultural reasons. The only problem with such restrictions is that they reduce the selection of products which are available to the consumers. In the United States, cultural influence is seen as a threat to the national cultures around the world. This is because, globally the strength of the United States in entertainment, consumer goods and media such as movies, magazines and music. These products are highly visible to all consumers and cause groups of various kinds to the state government officials for protection from their cultural influences. Rhetoric of protectionism tends to receive widespread public support hence domestic producers of competing products find it easy so that to join in the calls for protection. English language is so easily infiltrate the cultures of the nations. This laws are used to regulate activities that impose external costs, so that to regulate oligopolies and monopolies, and to provide consumer protection. Moreover, legal controls are often simpler and easier to operate than taxes and are much safer when the danger is potentially great. Despite the conspiracy theories approaches put forth by some individuals and groups, the outcome is the natural result of international trade. International trade in all sorts of goods and services tend to expose people around the world to new ideas, words, products and ways of life. However, as international trade continues to expand, many governments try to limit potential adverse effects on their economies and cultures. This is where the approach of the international trade meets the reality of the international business today. It has influenced seven developing countries of resources that could be invested in more productive ways, including the transition to more sustainable forms of energy. Government intervention in the market may lead to shortages of surpluses; it is based majorly on poor information. It may also influence production in public owned industry. It also provides information in cases where private sectors fails to provide an adequate level in the economy. Taxes are being imposed by the government so that to correct market distortions. This is achieved by making tax rate to be equal to the size of the marginal external cost, hence granting rates of subsidy are equal to marginal external benefits. Government restriction of international trade A tariff is defined as a tax levied by the government on products whenever they enter or leave the country. On the other hand, export tariff is described as the one levied by government of a country which export the product. The tariff levied by a certain country’s government that the product passes through as a way to its ultimate destination is known as transit terror. The tariff is a government’s levy on a country importing the goods or products. These are the categories of the import tariff; compound tariffs, specific tariffs, and ad valorem tariffs. A restriction on the amount (measured in wait or units) of product entering or leaving the country during a convinced point in time is known as quota. Import quotas maybe imposed by governments in protection of domestic producers or the export quotas in maintenance of adequate supplies in home market or increase in prices of goods on world markets. Trade complete ban (export and imports); One of more products with a certain country is called embargo (Rawls, 1972). A law that stipulates the specific amount of goods and services that the domestic markets and producers supply is known as the local contented requirements. Governments also discourage the imports through causing administrative delays or controls in currency. The world trade organization promotes free trade GATT (General Agreement on Tariffs Trade) is a treaty created to promote free trade via the cutting down of care as well as barriers of non tariff nature to international trade. To add to this, the 3 World Trade Organization goals are geared at helping the free flow of trade through negotiation that results in opening markets. Trade disputes are settled between members being the major components of the World Trade Organization. These are principals of non-discrimination called the normal trade relations which requires WTO for equity to all members (Nozick, 1974). When a product is exported by a company with a price tag that reads less than what it costs in the domestic market or even lower than production cost, it is said to be dumping. With WTO, nations retaliate against the dumping under some conditions. Methods governments use to promote international trade. The term subsidy refers to the financial aid that domestic producers receive in terms of tax breaks, cash payments, supports to product prices, lowered interest loans among others. It is aimed at helping domestic companies that send out competitors to the international market. Exporters also receive lends to finance their exports from governments. Furthermore, there is guarantee that the government repays companies lend if it default on repaying the loan. Most nations always permit trade with other countries by creation of what is called foreign trade zones or (FTZ). An FTZ is a marked out geographical location in which merchandise is always allowed to go through or pass through with custom duties that are lowered (taxes) and very few custom procedures (Nozick, 1974). Finally, most of the countries are having special government agencies that are responsible for exports promotion. The agencies organize trips across countries for business people and trade officials opening offices also across each country thus promoting home country exports. Conclusion To conclude, the intervention of international trade by the governments should be promoted. Because of the intervention, developing nations are protected from other nation’s motives (Wright, 1980). The trade is seen to be flowing and safe for participation with any nation due to the set policies governing each countries trade across boarder trade is secured and safe for participation, also, there is a great reduction in the trade barriers governments everywhere which continues to restrict free trade. References Baumol, W. (1976). On the Performing Arts: The Anatomy of their Economic Problems, in: The Economics of the Arts. London: Hound mills, MacMillan Press Ltd Charny, M. (1989). The Normative Economics of Health Care Finance and Provision. Norwich: Lewis P.A.; Farrow Margolis, H. (1982).Selfishness, Altruism and Rationality: a Theory of Social Choice. Cambridge: Cambridge University Press, Cambridge Sloan, F. (1995). Valuing Health Care. Cambridge: University Press, Cambridge Weinstein, M. (1996). Cost-Effectiveness in Health and Medicine, Oxford: University Press, New York Rawls, J. (1972). A Theory of Justice. Oxford: University Press, Oxford Nozick, R. (1974). Anarchy, the State and Utopia. Oxford: Basil Blackwell Wright, E. (1980). Fabric of Freedom, London: California University Press Wood, G. (1993). The Creation of the American Republic. New York: Steve Publishers Read More