The Political, Economic, and Cultural Motives behind Government Intervention in Free Trade - Coursework Example

Running Head: POLITICAL, ECONOMIC, AND CULTURAL MOTIVES The Political, Economic, and Cultural Motives behind Government Intervention in Free Trade Name Institution The Political, Economic, and Cultural Motives behind Government Intervention in Free Trade There are many benefits associated with free trade. One of the benefits is the increase in competition to domestic firms that can lead to decrease in prices of products. The domestic firms will also aim to increase efficiency and cut costs. Another benefit is the increase in exports for importing firms. Due to the low tariffs associated with free trade, the firms can easily venture into new markets. Through free trade, surplus raw materials can be exported to other countries. Lastly, there is the benefit of economies of scale that can lead to reduction of prices (Howe, 2013). All the above benefits will ultimately be advantageous to the consumers. Despite the many benefits that can be associated with free trade, many governments still impose restrictions on it. The motives behind the restrictions are usually variable. Nevertheless, they can be categorized into three: political motives, economic motives, and cultural motives. The reasons of a particular government could be one or a combination of the three motives. A detailed discussion of the three categories of motives will be done below. Most government motives are usually politically motivated. Policies that regulate trade are usually drafted based on either the personal motives of politicians or those of the political party. One of the main political motives for intervention is job protection (Vorton, 2010). Among the many benefits of free trade is the inflow of cheaper goods and services. However, many governments are usually of the opinion that though free trade helps grow the economy, it also leads to collapse of industries that lack competitive edge over the foreign markets. Collapse of industries leads to job losses which could destabilize a country. The governments therefore move to protect jobs by imposing tariffs and quotas on imports as well as subsidizing goods and services from local industries. As an example, Russia upon joining the World Trade Organization did not abolish tariffs imposed on automobile imports but instead negotiated reduction of such tariffs. It argued that the only reason behind this was to protect jobs of Russian workers and industries (Fean, 2011). The second motive is to preserve national security (Vorton, 2010). Many governments usually tend to protect those industries that are important to their national security. They offer financial assistance and low taxation especially to those companies in the defense industry in order to give them a competitive advantage in the market. They may also sabotage the efforts of foreign companies to enter the market by incriminating them with falsehoods. To preserve national security, the governments impose restrictions on imports and/or exports. On imports, the governments ban imports of food supplies, medical supplies, among others in order to guarantee domestic supply. Exports of goods related to defense and technological advancement are also restricted (Willett & Jalalighajar, 1983). An example of this motive is the recent ban of Huawei, a Chinese company, by the Australian government to participate in the $38 billion NBN tender (Wroe, 2012). The government claimed the company was a threat to national security. Another similar example is the declaration by the U.S.A. senate that the Chinese companies comprising of Huawei and ZTE pose a security threat. The senate advised citizens not to enter into business with such companies (NCAFP, 2013). The two examples show just how many governments are always skeptical of those foreign companies that are owned by enemy countries. They feel that these companies are likely to carry out espionage on behalf of their governments. The third motive is in response to unfair trade practices of other nations (Vorton, 2010). This motive is usually in retaliation to the decision of another country to not adhere to free trade rules. One country will impose tariffs and quotas on imports because another country does the same. This usually happens when one country loses the benefits of free trade when the other maintains tariffs that were meant to be abolished. The motive is usually very dangerous and can lead to escalation of conflict between the two countries. Governments usually issue threats to impose high tariffs if the other country does not concede to free trade terms. The motive has been exemplified by the U.S. decisions to impose tariffs on imports from China as a result of the actions of China to undervalue its currency (Dorn, 2012). The fourth political motive is the need of the government to gain influence over other nations. In simpler terms, powerful nations impose unbalanced and unfair trade relations with developing nations in order to gain economic control of such nations. Trade relations with these nations is usually one way with the developing fully dependant on trade with the dominant nations. This creates some kind of “economic slavery” for weak nations where their economies are very dependent trade with powerful nations (Braddock, 2012). The powerful nations can therefore be able to influence policies and the governance of weaker nations through this motive. As an example, western nations including the U.S. and China have been blamed for the underdevelopment of Africa. One of the reasons attributed to this accusation is the unfair trade terms with Africa. The developing nations enter into dubious and one-ended trade deals with the developing countries that are meant to exploit their resources. These deals are crafted to be so complex that sometimes government leaders in Africa do not even understand the terms of the agreement. The West will exploit Africa natural resources and cash crops in exchange for aid money. The impoverished Africa has therefore become dependent on the West as an economic slave (Soko & Lehmann, 2011). Likewise, most of the policies and governance issues in Africa are determined by the developed countries. The governments may also restrict free trade for economic motives. There are several basic economic motives. The first one is to shield infant industries from competition. Infant industries are defined as emerging companies in their development phase. The government protects such industries from international competition until they are able to sufficiently compete on the international level. It does this by introducing protective tariffs, quotas, as well as domestic production subsidies with the aim of maximizing domestic welfare. Infant industries are given time to grow and mature while they learn about how to become more efficient and innovative so as to be better equiped in the global market competition (Melitz, 2005). However, protection of infant industries should be temporary. Nevertheless, most governments extend this protection for long periods of time. Prolonged protection has the effect of making domestic firms noncompetitive. These firms may also become complacent towards innovation. They neither invest in increasing efficiency nor cutting costs. The firms become monopolies whose result is the increase in prices of consumer goods much to the disadvantage of the consumers (Howe, 2013). Another economic motive is to pursue a strategic trade policy (Vorton, 2010). A strategic trade policy is an industrial policy that is designed to capture profits of foreign firms so as to increase national income. The government helps domestic firms earn more profits by enjoying first-mover advantages. By being the first to enter the market, domestic firms gain an advantage over potential rivals as well as actual rivals. The firms can establish a defensive ground to ensure they gain a bigger market share easily. When the rivals enter the market, the firms will be at a greater advantage with regards to competition with their rivals (Milner & Yoffie, 1989). A third economic motive is to protect home industries. The governments appeal to the public to buy “homemade” products at the expense of foreign products. They also formulate policies that protect local firms from overseas firms that produce low cost goods. This happens at the expense of the quality and the prices of products from these local firms. The effect of such protection has the effect of creating monopolies and dormancy in growth of local firms. The rationale behind protection of local industries is varied. One of the reasons is to keep money at home. Governments argue that free trade lead to a cash outflow thereby making locals poorer while the foreign firms get richer. The second reason is to ensure job security. The argument behind this is that free trade increases imports thereby reducing demand for local goods. This can lead to collapse of local industries and subsequent loss of jobs. The third reason is to help equalize price and cost of goods. Governments impose tariffs on cheap foreign goods in order to make locally produced goods more competitive (Bai, Du, Tao, & Tong, 2004). There are several cultural motives behind government restriction on free trade. One of the cultural motives for governments to restrict free trade of goods and services is in order to protection the national identity of its people (Vorton, 2010). One of the effects of free trade is globalization. Free movement of goods and services means that even people will be able to move freely. However, globalization brings about integration of culture as well as erosion of cultural values. Religion, dressing, food, and language are among the cultural practices that change. Different religious beliefs can be introduced into the society that erodes current beliefs. The integration with other cultures will also lead to changes in dressing, food, and language. Likewise, some vices may be introduced into the society due to free trade. One of the common vices is pollution. Free trade leads to increased industrialization as markets expand. The increase in the number of industries as well as the increase in goods and services causes an increase in environmental pollution. Therefore, the governments establish policies that protect the environment although they restrict free trade (Nader, 1993). Another cultural vice is immorality. Free trade leads to introduction of new moral concepts and contents in the economy. Integration of cultures leads to introduction of new practices that may include pornography and indecency. The governments restrict free trade in order to protect from such practices (Pauwelyn, 2010). An example of this restriction can be found in China. The government constantly censors a lot of material entering the country. Some include monitoring the internet, blocking some websites, and restricting foreign music and movies. Foreign movies that depict a lot of violence have to be edited before they can be shown in China. Only recently did Google get its license to operate in China after it agreed to conform to the censorship laws (Pauwelyn, 2010). In conclusion, the reasons behind the intervention of governments to free trade are varied. These reasons can be grouped into three; political, economic, and cultural motives. Political motives include protecting home jobs, protecting local industries, preserving national security, gaining influence over others, and retaliation to unfair practices by nations. Economic motives include protecting infant industries and pursuing a strategic trade policy. Lastly, the main cultural motive is to protect the identity of the citizens. Mostly, the governments restrict trade by imposing tariffs, quotas, embargoes, administrative delays, local content requirements, and currency control. References Howe, A. (2013). FREE TRADE AND ITS ENEMIES. Victorian World, 108. NCAFP. (2013). Cyberpower and National Security. American Foreign Policy Interests, 35(1), 45-58. Melitz, M. J. (2005). When and how should infant industries be protected? Journal of International Economics , 66 , 177–196. Fean, D. (2011, November 9). Can the W.T.O. Change Russia. Retrieved May 16, 2013, from New York TImes Website: http://www.nytimes.com/2011/11/10/opinion/can-the-wto-change-russia.html Wroe, D. (2012, October 25). Huawei hits back at NBN deal rejection. Retrieved April 16, 2013, from The Sydney Morning Herald: http://www.smh.com.au/it-pro/government-it/huawei-hits-back-at-nbn-deal-rejection-20121024-2868u.html Dorn, J. A. (2012). China Looms Large in US Presidential Campaign. Soko, M., & Lehmann, J. P. (2011). The state of development in Africa: concepts, challenges and opportunities. Journal of International Relations and Development, 14(1), 97-108. Braddock, D. (2012). Freedom, Oppression and Corruption in Sub-Saharan Africa. Southwestern Economic Proceedings, 33(6), 1-16. Vorton, J. (2010, July 09). Why governments intervene in international business. Retrieved April 16, 2013, from Helium.com: http://www.helium.com/items/1873185-government-intervention-international-trade-business-political-economic-motives Willett, T. D., & Jalalighajar, M. (1983). US trade policy and national security.Cato J., 3, 717. Milner, H. V., & Yoffie, D. B. (1989). Between free trade and protectionism: strategic trade policy and a theory of corporate trade demands. International Organization, 43(2), 239-272. Bai, C. E., Du, Y., Tao, Z., & Tong, S. Y. (2004). Local protectionism and regional specialization: evidence from China's industries. Journal of International Economics, 63(2), 397-417. Nader, R. (1993). The Case Against Free Trade: GATT, NAFTA and the Globalization of Corporate Power An Earth Island Press Book (Vol. 49). San Francisco, Calif.: Earth Island Press. Pauwelyn, J. (2010). Squaring Free Trade in Culture with Chinese Censorship: the WTO Appellate Body Report on China-Audiovisuals. Melb. J. Int'l L., 11, 119. Pomeranz, K., & Topik, S. (2012). The World That Trade Created: Society, Culture, and the World Economy, 1400 to the Present. ME Sharpe Incorporated. Read More