Essays on Reasons for Government Intervention in Trade Coursework

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The paper "Reasons for Government Intervention in Trade" is a perfect example of business coursework.   Since World War II, literally all countries have experienced rapid growth and development in the global economy. This has been through increased economic activities and more particularly global trade and international foreign investment. In 1960, for instance, the period which characterized by the chaos of postwar years finally came to an end and the world began its journey of exponential growth, the cumulative ratio of global foreign trade and gross domestic product (GDP) was at 25 percent (Caves & Johnson, 1968).

Apart from the periods of a global depression, this figure has consistently increased and by 1999 it had risen to 52 percent. In simple terms, the postwar period was characterized a rapid rate of globalization, embedded in multilateral trade negotiations; liberalization of trade as well as an investment; deregulation and privatization of state industries; and progressively cheaper cost on foreign trade as a result of technological improvements in the transportation and telecommunications sectors. With liberalized trade, perhaps it will be important that we comprehensively understand the policy of free trade.

Under this policy, governments do not necessarily discriminate against imports by applying imposing tariffs or interfere with exports by applying subsidies. In regard to the law of comparative advantage that governs the free trade; trading partners are awarded an equal ground and mutual benefits from trade of goods and services. According to the free trade policy, prices are determined by the equilibration on demand and supply and are the exclusive determinant of resource allocation. This is contrary to another kind of policies in a trade where product and service allocation as is influenced by price strategies that may be different from those emerging from deregulation.

These controlled prices are due to the government market intervention through adjustments on prices or supply restrictions; for instance protectionist policies (Altschiller, 1988). The government interventions would subsequently result in a decrease or increase in the cost of goods and services. Over the years, countries have progressively decreased tariff barriers as well as currency restrictions in order to facilitate international trade. However, this has not comprehensively been achieved due to other barriers like; taxes, import quotas, and different means that have been embraced to subsidize domestic industries. Government interventions Free trade may result in turbulence in diverse sectors of a domestic economy, for instance in the manufacturing industries that are already vulnerable to global competition.

Therefore to controls such a negative influence many governments intervene through the following strategies; Subsidy A subsidy is simply a grant or any other kind of financial aid given by one country for the development or support of another (Hufbauer & Shelton, 1984). Essentially, a subsidy is a strategy to keep consumer price below the standard market levels or to keep producer prices above market levels or on the other hand, reduces costs for both consumers and producers by giving indirect or direct support.

However, the conventional understanding of subsidy is the payment made by the government to a producer. Subsidies may be direct; cash grants and interest-free loans or indirect; for instance insurance, tax breaks, low-interest loans, and depreciation write-offs. This kind of aid has been known to be illegal, legal, unethical or ethical.

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