IntroductionWith most countries still struggling to recover their economies from the financial crisis, governments are skillfully using some tactics in international trade rules to protect their local firms against unfair competition from powerful international corporations. Most countries and governments use to defend their economic policies quite vigorously (Ball et al, 2008). To maximize its advantage, governments across the globe are exploiting a fundamental difference in major international institutions such as the World Trade Organization an International Monetary Fund. The World Trade Organization wields strict, enforceable restrictions to governments that impede trade while on the other hand, the International Monetary Fund acts like a global watchdog for international trade policies, though it has no power over superpower economies such as the US and China that does not borrow grants from it. Governments engage in such trade activities through various methods that are aimed at limiting the quantity of imports and making business for foreign firms difficult in the local business environment.
Such methods include the use of tariffs that involves high tax on imports, the use of quotas that regulate physical quantity of imports, the application of embargos that means a total ban on specific products, subsidizing local firms with loans, and application of administrative barriers to impose minimum environmental standards. In times of economic downfall, most governments actively engage in protecting their local firms as a way of winning political popularity.
This is possible through encouraging citizens to purchase locally manufactured and produced goods to spur the local job market and greatly avoid high levels of unemployment that may be quite damaging in the political dimension (Harrison, 2010). Governments also participate in international business on behalf of their local firms in order to protect strategically important industries such as firearms, petroleum, and medical products.
Such industries are too delicate to be left in the hands of foreign companies that may not to be interested in ensuring quality in expense of profitability. However, government participation in international business in place of their local firms comes with both benefits and disadvantages to local and global economy as well. Most arguments have it that government participation can inhibit economic growth while other arguments indicate that it protects employment (Verbeke, 2010).
However, without considering its benefits and pitfalls, government participation in business plays a major role in the global business and their policies and most governments still impose trade barriers on imports to protect their local firms. Benefits of Government Participation in Global BusinessProtect sunrise industriesGovernment protection of infant firms from unfair competition from superior international firms helps protect firms that are still on their feet in the local environment. This allows these companies to grow, develop, and become more competitive at international levels. Protection of domestic firms may make them develop a comparative advantage.
When protected from foreign competition, infant firms are offered a great opportunity to expand and thus benefit from economies of scale (Ball et al, 2008). As these firms expand in their operations, they will be able to invest in real and human capital, thus offering them the opportunity to develop new skills. After development of new skills, such firms will be able to compete with its own and therefore no need for more protection from the government.