Government Intervention in Free Trade - Article Example

Government Intervention in Free Trade Name Course Name and Code Instructor’s Name Date Introduction Free trade is a scenario whereby exports and imports occur without trade barriers. Free trade has numerous benefits but governments usually have continued to intervene in trade of services and goods. Therefore, why do governments impose conditions on free trade? Three important factors associated with intervention of the governments, which include economic, political and/or cultural reasons or sometimes a combination of these three factors. Numerous governments usually support the operations of domestic markets with the aim of exportation. Therefore, the aim of this paper is to analyse government interventions to free trade; from the perspective of political, cultural and economic reasons. Political reasons Political motives usually direct government officials in making decisions, which are related to trade (Sally, 2008). The aim of political branch of a government is pleasing the voters with the aim of retaining power for a longer period (Coyne, 2008). One of the major reasons why government intervention is important is protection of jobs. High rates of unemployment are a threat to a governing power and it is important to ensure low rates of unemployment are maintained (Bissa, 2009). This means that governments are involved in intervention of trade to prevent threats to jobs at home. For example, the government of Guyana in South America advocated for local goods and services since foreign goods and services do not mean the products and services are better (Sinha & Sinha, 2009). In the same way, the government of China countered the effect of Kodak because it was eroding the market of China Lucky Film (Gruhl, Comer & Rigdon, 2009). The government of China restricted the proposed joint venture and the government loaned $240 million to rescue the falling Lucky. These examples illustrates governments go an extra mile to ensure local population have access to jobs. Preservation of national security is another aspect, which governments aim to achieve because of their interventions in trade. Those industries viewed by the government has important to national security usually are protected (Rosati & Scott, 2011). The government can control some imports such as fuel, weapons and sea, land and air transportation (Adekola & Sergi, 2007). For example, the United States government has continuously searched for oil within her borders because disruptions from outside may prevent the flow of oil (Gruhl, Comer & Rigdon, 2009). Other countries such as France are providing subsides to local population to be able to produce agriculturally more (Bissa, 2009). Conversely, restrictions on importation may make some products more expensive compared to importing. Apart from importing, some governments usually restrict exportation because of national security (Grimwade, 2012). The government can burn those products and technologies, which have dual uses; they can be utilised either military or industrial at the same time (Nelson, 2008). This phenomenon was common in the Cold War era where Soviet Union were in conflict with Western countries especially United States. Gaining influence is another factor in which governments usually intervene in trade. The influence is usually utilised by bigger nations to influence the smaller nations (Rosati & Scott, 2011). For example, Asian countries have presences in both export and import industries and Japan has better influence compared to other countries. The government of Japan, because of superiority, has continuously assisted countries within the region financial to recover from challenges associated to financial crises (Gruhl, Comer & Rigdon, 2009). The aim of the Japanese government is to generate goodwill among her neighbours through these deals. In addition, the government of United States has utilised similar strategy and have entered into understanding with North, South and Central America (Bissa, 2009). However, the same government has banned trade with Cuba to influence on internal politics. Therefore, numerous countries usually utilise trade as a means of gaining influence based on governmental expectations. Retaliation to the way other governments participate in trade is another factor in which a government, politically, can intervene in trade (Gruhl, Comer & Rigdon, 2009). Many economists and political analysts argue that sense cannot be made for one nation allowing for free trade while another government protects her own industries. The government disadvantage usually threatens to impose more tariffs or close her ports from other nation’s ship if the nation doing business unfairly does not concede to unfair trade. The “unfair” trade between nations may force one of the nations to introduce measures that counter this unfairness (Botto, 2009). Economic Motives Governments usually participate in trade which is highly charged because of political reasons but also a government can intervene due to economic reasons (Rosati & Scott, 2011). The main aim in which governments intervenes in economic part of trade is because of protection of infant industries. According to the argument on infant industry, it is important for a government to save guard the infant industries from stronger international competition especially during the development phase and the intervention continues until the industry can compete effectively internationally (Bissa, 2009). This is attributed to the steep learning curve in which any infant industry must pass when it matures until it gains enough knowledge to become more competitive, efficient and innovative (Anderson & Neary, 2005). Participation of government in assisting these infant industries is faced with numerous challenges. For example, the government of Japan assisted this infant industry between 1950s and 1980s but it later faced challenges because of inability of distinguishing between developed industries from developing industries (Gruhl, Comer & Rigdon, 2009). Other disadvantages associated with protection of infant industry includes complacent toward innovation and high consumer costs because of lack of effective competition. In addition, the government involved in trade may be attributed to pursuance of strategic trade policy. Government intervention can assist companies to maximise on economies of scale (De Carvalho, 2011). Economies of scale assist a government to increase national income (Kerr & Gaisford, 2008). This is attributed to the aspect of first mover in their specific industry. This means that the companies which are first movers should earn good profit within a short time and also to solidify their positions across the world. An example of a government that benefited immensely through this policy directive is South Korea (Bissa, 2009). South Korea industries were able to built international conglomerates and they had better advantage compared to competitors (Heydon & Woolcock, 2012). The South Korean shipbuilders received a lot of support from the government through low-cost financing and government subsidies. These companies that formed the conglomerates were able to survive harsh economic times because of their presence across the world. Even though, the presence of the government in assisting industries and companies through policy development, challenges are reported. Some of the drawbacks associated with the strategic trade policy contribute to high costs and inefficiency as indicated in the late 1990s by Japanese and South Korean companies (Gruhl, Comer & Rigdon, 2009). Since the government was assisting the South Korean companies, high wages reported costs because of concessions to unions it result in the large conglomerates operating under meagre profit margins. This problem was evidenced by the currency crisis reported in 1997 in which the governments realised they had assisted the companies more than what they were supposed to do (Bissa, 2009). This resulted in passing of a law that allowed companies to fire their employees. Moreover, if the government supported certain industries or companies, it is usually attributed to political lobbying and such approach is usually dangerous in the long run for the industry (Rosati & Scott, 2011). Generally, policy developed should balance the requirements of the government and also the impact of the policy towards the operations within the government. Cultural Motives Governments usually restrict trade in services and goods with the aim of achieving cultural objectives and specifically protection of national identity. Trade and culture are intertwined and in most instances complement each other (Bissa, 2009). Cultures of a specific region are continuously eroded by presence of international products and introduction of other cultures. Influences of unwanted cultures in a given nation may contribute to immense distress and the government may decide to block the imports with the aim of preventing further harmful effects (Gruhl, Comer & Rigdon, 2009). This is attributed to factors such as cultural imperialism. For example, the French government has banned utilised of foreign language in mixing with French. As example, words such as hamburger and jeans are not acceptable in any public announcements, TV or radio broadcasts, advertising messages, government and business communication. Another example is the requirement of music that is played in Canada. The local music content should account to 35% of Canadian artists to counter the effects of United States. Mixture of the three factors: Culture, politics and economy Moreover, government participation in free trade also assists other governments on how activities are done. For example, the government of Saudi Arabia has accepted teaching English as a foreign language in their educational system (Bissa, 2009). The aim of the language is to assist in international trade because of huge number of tourists and huge supply of oil to numerous parts of the world (Rosati & Scott, 2011). Therefore, the government in this instances aims to improve its economy but also to ensure new cultural directives are introduced in a manner that sustains the societal requirements. Hence, cultural requirements can be managed to ensure the society sustains itself. Not only does the culture require economy, but culture also requires political support. Political dispensation should understand the importance of culture and should device directives that balance both the requirements of culture with politics (Gruhl, Comer & Rigdon, 2009). Even though, government intervenes in free trade, the political side of the government should device measures that assist local population to understand the benefits of international trade and inform the local population on the benefits and shortcomings of participation in certain scenario (Irwin, 2009). Australia is a country that is visited by tourists across the world and it is important for the government of Australia to pass policies that assists the business to succeed while at the same time the customers are satisfied (Rosati & Scott, 2011). In addition, politics and economy comes together to ensure free trade operates effectively. The government can employ economic dispensation and political strategy to ensure the local requirements succeed effectively (Bissa, 2009). For example, United States policy formulated towards Africa is aimed at creating and sustaining democracy but at the same time the government of United States benefit economy through exportation and important. United States can important coffee from Africa, Kenya for example, and the government of Kenya can obtain grants that help the country to champion governance (Gruhl, Comer & Rigdon, 2009). Such strategy even though is not directly related to free trade would make Kenya and United States to create an environment of goodwill. Thus, the outcome of the goodwill would be beneficial to both countries for the long run but for the short term, the United States of America benefit more. Conclusion The government plays an important role in free trade and international trade. Government may enter agreements with other governments with the aim of sustaining the economy but sometimes the government intervenes based on the requirements of political, economic and cultural requirements. Politically, the government intervenes in free trade because of preventing job, security reasons, gaining influence and retaliation against unfair trade. Economically, the government intervenes because of strategic policy and helping infant industries to succeed. Economy usually determines the direction in which a government should follow and determines whether the government becomes successful or becomes a failure. In addition, the government intervenes in free trade with the aim of protecting local culture. The government intervening in free trade has both its benefits and challenges. References Adekola, A., & Sergi, B. (2007). Global business management: A cross-cultural perspective. London: Ashgate Publishing, Ltd. Anderson, J., & Neary, J. (2005). Measuring the restrictiveness of international trade policy. London: MIT Press Bissa, E. (2009). Governmental intervention in Foreign Trade in Archaic and Classical Greece. London: BRILL Botto, M. (2009). Research and international trade policy negotiations: Knowledge and power in Latin America. London: Taylor & Francis Coyne, C. (2008). After war: The political economy of exporting democracy. California: Stanford University Press De Carvalho, E. (2011). Semiotics of international law: Trade and translation. New York: Springer Grimwade, N. (2012). International trade policy: A contemporary analysis. London: Routledge Gruhl, J., Comer, J., & Rigdon, S. (2009). Understanding American government, 12th ed. London: Cengage Learning Heydon, K., & Woolcock, S. (2012). The Ashgate research companion to international trade policy. London: Ashgate Publishing, Ltd. Irwin, D. (2009). Free trade under fire: Third edition, 3rd ed. Princeton: Princeton University Press Kerr, W., & Gaisford, J. (2008). Handbook on international trade policy. London: Edward Elgar Publishing Nelson, C. (2008). Import/export: How to take your business across borders, 4th ed. London: McGraw Hill Professional Rosati, J., & Scott, J. (2011). The politics of United States Foreign Policy, 5th Ed. London: Cengage Learning Sally, R. (2008). New frontiers in free trade: Globalisation's future and Asia's rising role. London: Cato Institute Sinha, P., & Sinha, S. (2009). 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