Motives behind Government Intervention in Trade - Coursework Example

Running Head: Government intervention in trade Motives behind government intervention in trade Name Institution Date Government Intervention in Trade Introduction The government establishes a set of rules aimed at influencing the trends in businesses and economic activities. Regulation comprises of different government actions undertaken to control trade. Some level of government intervention to trade is important for the functioning of the current market economies. Participants in trade should have confident that the business contracts they enter are fully upheld, with clearly defined rule and regulations. Free trade is a trading pattern where there is the importation and exportation of goods and services. National governments continue to intervene in trade by imposing restrictions, despite the advantages associated with free trade. Generally, government intervention is carried out due to political, economic, and cultural reasons. Governments involve in trade in order to support the domestic companies to export goods and services. They could also intervene when the economy is performing poorly. During the time of economic hardships, the government comes in to control the imports that continue to drug the economy down (Business-government Trade Relations).This paper shall discuss the reasons why the government involves in trade by considering the political, economic, and cultural reasons. Officials in government usually make decisions that affect trade due to political reasons. It is believed that for the politicians to survive politically, they have to please voters so as they could be re-elected to office. Making trade decisions that favor the citizens is one of the avenues to please them. In most cases, formulated trade policies that are based on political reasons serve the country well for a long time (Office of Free Trade, 2009). The political motives that lead the government to participate in trade include the need to protect the jobs of its citizens, maintaining national security, opposing unfair trading by business partners, and achieving superiority over other nations. Protecting citizens’ jobs is one of the political motives for government intervention in trade. One of the reasons why a government is removed from power is due to high rates of unemployment. Governments become concerned when trade activities threaten the jobs of its citizens at home. A case in study is when the president of Gunaya, a state in Southern America, convinced his citizens not to import goods from other countries, but to use the locally produced goods. He strongly discouraged importers from importing more goods to the country with the fear that they could hinder the selling of locally produced goods. The main reason for taking that position was to protect the jobs of the citizens, which could otherwise be interfered with by increased imports (Office of Free Trade, 2009). Sometimes the governments’ efforts to protect jobs may not be received well by the entire public. This would happen when the biggest market for certain goods or services are dominated by foreign business activities. Such a trade scenario puts the government into a tight situation of deciding whether to apply protectionism or to support the company in question. Depending on the nature of the business, the government may be forced to consider her decisions. Fuji and Kodak photographic companies own the biggest market share in China, and operates parallel to the state-owned Lucky film country (Business-government Trade Relations). When the state company’s market share dropped to 7%, the nationals encouraged the government to support the company to grow. The government had to prevent Kodak and Lucky from entering joint ventures for fear of the Chinese product from collapsing. The government put a ban on film companies to form joint ventures. It can be argued that the reason why the government of China intervened was to safeguard the interests of her citizens in terms of creating and protecting jobs. The government intervenes in trade with the motive to promote national security. This falls under political motivation. The government protects industries that value national security, both the import and export industries. Some imported products are not allowed by government for the purpose of protecting the national security (Steve Ferris, 2010). It is necessary for the government to have access to imported supplies like fuel and weapons, and the modes of transport like land, sea, and air so that in case of war they are not affected. For instance, several national governments, especially the US have continued to look for oil within so that the supply is not interfered with in case of war. Other governments continue to protect their agricultural products for national security concerns. The argument is that a country that imports most of its agricultural products risks of starvation in case of the outbreak of war (Svendsen, 2003). A country like France has received criticisms from other nations for guarding its sector of agriculture. Despite the criticisms, the French government has been able to subsidize its agricultural sector, which enables the farmers to receive attractive financial returns to their products. However, government intervention in import completion has negative effects. One major drawback is that the country may continue to produce a product or offer a service that would otherwise be supplied at less cost from the international market. Therefore the government motive of protecting the national security is quite challenging, and it has to consider the applicability of the trade policies they make to the national security concerns before implementing (Steve Ferris, 2010). As mentioned earlier, the government can also intervene in trade by restricting exports. This is done for the national security reasons. The government ensures the security of the nation is maintained by imposing a ban on the export of particular defense-related goods. Majority of nations that are industrialized use various agencies to consider exportation of technologies that can be used in both the industry and military activities (Jameson, 2000). Products that are used in different functions are exposed to government approval for export, due to the need to protect national security. Imposing bans on exportation of products with multiple functions were significantly manifested during the Cold war. Other nations don’t enforce these restrictions, but with the availability of threats of terrorism, nations are realizing the need to implement such bans. The need to protect the nation from unfair trade activities is another political motive why the national governments intervene in trade. It does not make sense if a nation allows free trade while the nations she trades with protect their firms. In most cases governments will want to impose restrictions on goods of other nations who do not come to terms particular issues of trade, which is thereby seen as unfair (Steve Ferris, 2010). What this means is that if a government believes that it is not treated fairly by the other nations in trade, it will threaten to behave the same way unless they reach a an agreement. National governments, especially the largest one in the world are politically motivated to intervene in trade in order to have greater influence over other nations. For instance, the US controls the events in the South, North, and Central America including the Caribbean region. It is due to this that the initiates of free-trade among the Americans receive support from the United States (Business-government Trade Relations). However, since the United States is able to influence the internal politics, it has retained a full ban on trading activities and investments within the community of Cuba. A part from the political reasons, the governments participate in trade due to economic motives. The main economic reasons for the government to intervene in trade are to protect the infant domestic industries from unhealthy competition and to enhance strategic policies of trade. It is important for the government to protect its infant industries competition from others nations until they mature to compete globally (Deardorff, 2000). Infant industries need government protection due to a learning curve during the development stage. The interpretation of this trend is that as a firm grows to maturity it acquires the necessary knowledge that enables it to be efficient, innovative, and more competitive in its operations. However, protecting the infant industries by the government is associated by several challenges. The government is required to establish clearly whether the industries qualify to be protected or not. This is a difficult task for the government to undertake. Protecting the young industries from international competition denies them the opportunity to innovation. Overprotection limits the industries from acquiring information to enable them compete with other players in trade. The government intervenes in trade with the economic motive of achieving strategic trade policy. Research indicates that government intervention allows companies to utilize the existing economies of scale in a manner that facilitates growth in their respective industries. Markets are usually not effective, and thus there is need for government intervention. The reason why the government intervenes in the market is to establish a clear framework upon which markets operate, and to have an impact on the market outcomes. By setting a clear market framework, the government encourages fair and open competitive business environment. The government ensures openness in trade by establishing the rule of law which governs trade activities within and without the nation. The government also develops the property rights, ensures that trade contracts are respected, and facilitates the establishment of institutions to foresee market operations. It also involves creating a framework of law that outlines how firms and consumers should treat one another when engaging in trade (Office of Free Trade, 2009,p.11). According to Deardorff (2000, p.3), the economic motives why national governments intervene in the market can be split into three groups. Governments are interested in correcting failures in the market, redistributing income, and non-economic targets. The non-economic objectives could be related to the other two, but it is often necessary to consider them separately. The governments establish different policies to pursue the set objectives of streamlining the market. Belsky and Wachter (2010,p.3) argue that apart from the normal markets, the governments also intervene in credit markets. The concerns for the governments involving the credit markets are equity and fairness. The governments play a major role of redistributing income and wealth among their citizens in a way that is fair and equal. During the period of extreme economic depression, the government may resort to deficit spending by distributing funds to the banks and other financial institutions with the believe that action would encourage lending, increase the buying power, and improve the general economy. However, in trying to streamline the economy, most western nations engage in deficit spending which may have a negative impact to the economy. Huge fiscal deficits increase the interest rates of international debts, which affect the capital stocks, the national per capita income, and investment expenditures. Therefore, national governments should be careful when intervening in market so that they are able to manage all the challenges (Aikins, 2009,p.33). Cultural motives National governments protect trade due to cultural motives. The main cultural motive is to protect the identity of the nation. There is a close relationship between culture and trade, and there effects are felt by each other. Cultures of several countries are affected as a result of interaction through trade with people or goods from other cultures across the world. It is because of emergence of unwanted culture in a country that cause distress among the citizens that makes the government to prohibit importation of particular products believed to be harmful (Pauwels and Loisen, 2003). The United States is seen by other nations to as a threat to their cultures, more than all nations around the world. The reason why the US is seen as a threat is because it its entertainment and media, not excluding consumer products are sold globally. This has caused various lobby groups together with support from their governments to prohibit such products in order to protect their culture. Such protection receives public support, especially from the competing domestic producers of the similar products. According to (Posner, E. 2006,p.2), the national governments are so much concerned with protecting their cultural property. This is why they intervene in trade so as to the influence of other cultures through trade. Cultural property is defined as something which has a special relationship with the nation. It may include items in the archeological sites which give insight into the nations’ civilizations, and other features which represent a nation in a unique way. Most of the antiquities are affected at the time of war. For instance, during the 1st Gulf war, the United States assured Iraq not to destroy her cultural property. This did not happen since The U.S. went ahead to attack Iraq’s cultural heritage when it kept its military equipments in the archeological sites. In the 2nd Gulf war, criminals and other citizens from Iraq also looted the United States archeological sites and museums. Several antiquities have been destroyed while others disappeared. The argument is that UNESCO convention did not manage to stop trading in illegal antiquities. In fact, this trade still exists in more than several years ago. As a matter of concern, national governments establish laws that prohibit trade in activities that affects their culture and cultural properties. Conclusion In conclusion, national governments across the continent are concerned with how trade activities are conducted within and across borders. As discussed above, governments actively participate in trade due to political, economic, and cultural reasons. Political motives were identified to include the need to protect domestic jobs, national security, protect the nation from unfair practices of trade, and to have great influence over other nations. The economic motives include protecting the young domestic industries, develop a strategic trade policy, and to maintain a fair distribution of economic resources. The paper identified the cultural motives to be the need to maintain the identity of the nation and to protect the cultural property. Therefore, government intervention is necessary for the benefit of the nation, but the governments should be careful when introducing some trade policies. References Aikins, S. K. (2009). Global Financial Crisis and Government Intervention: A Case for Effective Regulatory Governance. International Public Management Review, 23-43. Belsky, E., & Wachter, S. (2010). The Public Interest in Consumer and Mortgage Credit Markets. University of Pennsylvania Institute for Law & Economic Research Paper, (10-05).  Business – government Trade Relations- Asher Production cited from www.usheproduction.com/design/8020/downloads/15.pdf Deardorff, A. V. (2000). The Economics of Government Market Intervention and Its International Dimension. Ann Arbor, 1001, 48109-1220. Finnemore, M. (2003). The purpose of intervention: changing beliefs about the use of force. Cornell University Press. Jameson, F. (2000). Globalization and political strategy. New Left Review, 4(2), 49-68. Jesse Vortion, (2010). Why governments intervene in international busisness: International Business and Trade,1-2. Office of Free Trade, 2009 “Governments in markets”, Why competition matters-a guide for policy makers. Pauwels, C., & Loisen, J. (2003). The WTO and the Audiovisual Sector Economic Free Trade vs Cultural Horse Trading?. European Journal of Communication, 18(3), 291-313. Posner, E. (2006). The International Protection of Cultural Property: Some Skeptical Observations. Steve Ferris, (2010). Problems in International Business. What are the Political Arguments for Government Intervention? Svendsen, G. T. (2003). The political economy of the European Union: Institutions, policy and economic growth. Edward Elgar Publishing. Read More