Government intervention in tradeEven though the world since the Second World War has witnessed great reductions in trade barriers, government everywhere continue to restrict free trade. The main motive behind state intervention in trade is protection of a country’s domestic market. In fact, many countries often encourage free trade at the domestic level but when the issue of protection of domestic markets comes into play, free trade is retired. According to Kelvin (2008), there are three major reasons why governments restrict free trade. These reasons may be political, cultural and economic or a combination of all the above factors.
One of the ways in which the government intervenes in trade is when they provide support to domestic businesses that want to export. In addition, governments intervene in trade during harsh economic times, when employees call upon the government to reduce imports in a bid to protect their jobs or in a bid to protect local production. This paper examines the reasons why governments find it necessary to intervene in trade. In so doing, the political, economic and cultural reasons for government intervention in trade are analysed in detail. Political reasons for government intervention in tradeGovernment’s world over make promises to citizens who propel them to power through votes.
As such, government officials have to make trade oriented decisions based on the ruling government’s political motives/manifestos. The main political reasons why governments intervene in free trade include; Protection of jobsOf late, the world has witnessed a rapid rise in the rate of unemployment. As such, most government nowadays are elected on a platform of job creation and have to put in deliberate measures to create jobs for the citizens if they have to gain the confidence of the electorate.
As such, a government that is unable to protect the already existing jobs will most likely be unpopular. Governments will therefore do anything possible to protect the already existing jobs so as to keep its citizens gainfully employed. Such actions will include intervention in free trade where this does not help in protection of jobs. For instance, James (2010), states that governments will ban imports where imports are cheaper than locally produced goods with an aim of protecting a local industry thus preserving the jobs that the industry offers to locals.
Such an action was witnessed when China’s Lucky film faced intense competition from the more dominant Kodak for China’s photographic film market. The government intervened to shield Lucky film from annihilation by offering it $240 million cash in addition to low interest loans (Alan, 2000). In addition, the government banned joint ventures in the China film manufacturing industry. Preservation of national securityGovernments world over will protect some industries in a bid to guard their national security.
This includes industries involved in weapon manufacture, aerospace, strategic minerals, semiconductors, advanced electronics etc. such industries that are vital to national security often attract government financing either in exporting or importing (John, 2003). Furthermore, governments may restrict trading in some items in a bid to ensure goods that are detrimental to public security do not find their way in unsafe hands. For instance, governments world over strictly regulate trade in fire arms and certain conditions have to be met before someone can be allowed to buy a gun for instance.
All these interventions in free trade are aimed at safeguarding public security.