Government Intervention on Trade - Assignment Example

Government intervention on trade Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Government intervention on trade Introduction It is an apparent fact that the post war periods after World War II have seen a greater shift towards the minimization of trade barriers. Nonetheless, governments in different regions around the world have continued to restrict free trade based on different motivations. This phenomenon is best epitomized in Britain whereby in the post-World War II epoch, the high manufacturers tariffs which were evident in the 1930s were shrouded with even higher and more strict exchange and trade control. This phenomenon was also apparent in France whereby there was only a gradual dismantling of the severe trade controls in the after the world wars. Nonetheless, eventual developments saw greater restriction and skyrocketing tariffs on all the imports which were perceived to be competing with the products which were being manufactured in the local market. Even the latter efforts to increase intra-European liberalization were frustrated and restricted by elevated tariffs as well as re-imposition of controls in this country. Similarly, the restoration of private trade in Japan between 1949 and 1950 saw the reemergence of restrictions on all the manufacturers and foodstuffs which were competing with the local products (Horowitz, 2004). This scenario epitomizes a greater paradigm shift towards the intervention of different governments in trade, despite the net socio-economic benefits which are linked to the minimization of government interventions and opening up the national and regional economies to trade (Anderson, 2004). Against this background, this paper is a profound effort to explore the political, economic as well as cultural motives which informs the move by various governments to intervene in trading activities in their regions of jurisdiction. Political motives The first political motivation towards the move by various governments to restrict trade is founded on the concept of political sovereignty. This is whereby when a given political regime exhibits extensive overreliance on commodities from a given region, this affects the sovereignty of the recipient nation in terms of robust bargaining power in case of contested interests in the international platform. This approach to sovereignty has been perceived as having played a key role in informing the debates in the US congress in the decision making process on whether the US should accept as well as execute the outcomes of the Uruguay Round of trade negotiations (Sarooshi, 2004). In this particular case, governments perceive that by permitting free trade between themselves and other nations, this is bound to degenerate to economic overdependence on the products from certain countries. This relationship can impede the government’s autonomy in making political decisions which affect their countries and thus clearly pose a major blow to their sovereignty. In this case, the foreign policy which is adopted by the importing government ought to be aligned with the economic interests of the exporting country, failure to which the exporting nation can decide to cut their supply and detrimentally affect the economy of the importing county. Subsequently, majority of the governments impose heavy tariffs on imports from other dominant countries aimed at encouraging their local manufacturers. As a result, they are bound to have greater politico-economic autonomy and develop their foreign policies without fear of being intimidated by countries which they depend on as sources of various products. The second political reason is related to the aspect of national security. This fact is supported by Ma & Lu (2011) who determined that one of the major reasons which governments choose to protect their national industries is the necessity to maintain an ‘adequate’ national defense. This support for protectionist policies by governments was even supported by Adam Smith who is considered as the father of free trade who determined that defense is of a greater importance than opulence. This political reason has become more apparent in the recent decades of increased globalization. Free trade has been credited for permitting the entry of illegal goods like arms concealed with the legal goods being imported. The resultant effect is that these arms are a key threat to not only the security of the country but also to the political stability of the state, if they get into the hand of illegal groups seeking to secede from the national government. Thus, the move by different governments to increase controls on trade has been perceived as being integral in enhancing the national security and political stability. The last political reason is to protect the economic interests of the individuals in the political class. This is whereby in case a powerful politician controls vast economic interests in the country, he/she is bound to lobby for adoption of protectionist policies aimed at reducing the level of international competition which might alienate his/her economic capacity to finance different political operations like campaigns. In this case, the move by different political figures to lobby for legislations to impose tariffs on imports can be geared towards protecting their economic capacity which influences their political operations both in the short as well as in the long-term. Economic motives One of the most cited economic motive of government intervention in trade is protection of the domestic industries. This is where a government planner can opt to protect a vulnerable infant industry through the use of tariffs or quotas aimed at maximizing the domestic welfare of the local companies in the long-run (Melitz, 2005). The above phenomenon was evident in the decision by the US government to impose higher tariffs on wire garment hangers imported from China. Initially, the wire garment hangers from China were being sold in the US at a price which was significantly lower than that from the domestic firms. This dealt a major blow to the local companies producing these garment hangers in the US. It was only after only one domestic garment hanger manufacturer remained in the US that the government through the United States Trade Commission (USITC) became cognizant of the material injury that these imports from China were posing on the domestic garment hanger producers in the US (Plummer & Cochlan, 2009). As a result, February, 5, 2003 saw the US government through the USITC imposing additional import tariffs on Chinese garment hangers which culminated in elevated price of the hangers from China and considerable revival of local production. Nonetheless, some commentators have cited this as being an inappropriate strategy of protecting domestic industries, and proceed to advocate for government subsidies on local producers aimed at not only increasing their production capacity but also motivating them towards expanding their operations. This reality was apparent in the above case whereby despite the undeniable fact that the elevated tariffs provided some protection to the domestic hanger producers in the US economy, these tariffs did not have an absolute effect of eliminating all the imports of this product into the US market (Plummer & Cochlan, 2009). The other economic motive is to protect the national economy from the detrimental impacts of probable regional or global financial recession. In this case, when a country relies on products from a given region, an economic slump is bound to raise the prices of the sought product which means that the government would incur extra costs in importing that particular product. This has informed the argument by advocates of increased government intervention in trade. This school of thought has argued that the contemporary financial crisis and recessions are an expression of the market failure which informs the role of the government to intervene in trade and eradicate the unpleasant implications of free trade activities. This is through regulations and controls as well as implementing fiscal policy instruments which are appropriate (Aikins, 2009). This can be through instituting tariffs on imports and subsequently elevating local production of particular products which cautions the country from skyrocketing costs of importing these products in case of a financial instability in the future. Additionally, political instability in the source country can pose major challenges in accessing certain products which citizens of a given country depends on from the affected country. This is best epitomized whereby during the Arab revolution in the recent past, different countries which depended on oil supplies from these regions might have experienced serious shortage of this commodity due to the inaccessibility of oil from the countries like Libya and Tunisia among others due to the apparent political turmoil. Thus, these recipient countries might opt to encourage local producers of oil through imposing higher tariffs on imported oil aimed at cautioning the local consumers from oil shortage as a result of political instability in the primary producing countries where they were importing from. The third economic reason is related to the need to reduce the entry of fake goods into the local market which might compromise the quality standards of the products being produced by the local manufacturers. In this case, the government may opt to impose higher tariffs on the imported products aimed at maintaining the quality standards of the domestic products both in the short and in the long term. Cultural motives There are several cultural rationales behind the intervention of the government on trade. Firstly, there is the issue of protecting indigenous knowledge. In this case, Melchias (2001) perceived indigenous knowledge as referring to what is known and done by the locals of a particular region, and have evolved overtime through processes of trial and error and have proved overtime to have the flexibility of dealing with change. Many scholars have fortified the use of indigenous knowledge as being an alternative way of stimulating development, mostly among the rural communities confronted by extensive poverty in different parts of the globe (Briggs, 2005). In this case, government intervention in trade in terms of imposing tariffs on imports which tend to substitute the locally produced goods which are founded on indigenous knowledge plays a key role in protecting these local products. This is founded on the fact that these indigenous products have a great influence of the local culture and in most cases respond to the unique dynamics in these local communities. This is best epitomized in the Australian context whereby certain products produced by the members of the Aboriginal population can have extensive impact in solving their local problems. Thus, the move by Australian government to impose tariffs of imports seeking to substitute these indigenous products is moved by the need to protect this local knowledge which is deeply embedded in the culture of the Aboriginal population. This fact is supported by Quiggin and Quiggin (2007) who determined that the need to protect and continue the existence of the indigenous culture has been a core concern for the indigenous people as well as for the public policy by the Australian government. The other cultural motive is the need to preserve the values and moral standards of the population of a particular region. This is founded on the fact that the importation of particular products from other regions, for instance, certain clothing and pornographic materials among other products might have the overall impact of distorting the prevalent culture in a given country. This is best exemplified in the countries which have for a long time embraced the Islamic culture which defines the day to day activities of these societies. People from these regions are often conservative to their religious culture in terms of clothing, moral literature and foodstuffs among others. Thus, the importation of certain products like the ones mentioned above can be viewed as playing a key role in the erosion of the prevalent cultural set-up in these regions. This can be in form of ‘corrupting’ the morals of the young people who have the tendency of embracing foreign mannerisms which they perceive to be fashionable. In this case, the governments in these regions, which often uphold the supremacy of the sharia law usually impose high tariffs on these products or even go to the extent of banning them altogether. This form of government intervention on trade can thus be perceived as being aimed at protecting the culture of the people in a given region from being eroded by foreign culture being perpetrated through the imported products. Conclusion The preceding analysis has evidenced that governments have continued to impose restrictions on trade despite the great reduction of barriers after the WWII. This has been informed by political, economic as well as cultural motives. The political motives are exemplified by the need to maintain the sovereignty of the state and protecting the economic interests of the political class. This review has also revealed the economic motives which include the need to protect the domestic companies as well as cautioning the national economy against the detrimental impacts of regional and global financial slump. The last section has revealed the cultural motives which include the necessity to protect the indigenous knowledge as well as protecting the local cultural values and norms from being eroded by practices expedited by imported products. References Aikins, S.K. (2009). Global financial crisis and government intervention: A case for effective regulatory governance. International Public Management Review, 10(2): 23-43. Anderson, K. (2004). The challenge of Reducing Subsidies and Trade Barriers. Discussion Paper No. 0412, Adelaide: University of Adelaide. Briggs, J. (2005). The use of indigenous knowledge in development: Problems and challenges. Progress in Development Studies, 5(2): 99-114. Horowitz, S., (2004). Restarting globalization after World War II: Structure, Coalitions, and the Cold War. Comparative Political Studies, 37(2): 127-151. Ma, J. & Lu, Y. (2011). Free Trade or Protection: A Literature Review on Trade Barriers. Research in World Economy, 2(1):69-76. Melchias, G. (2001). Biodiversity and Conservation. Enfield: Science Publishers, Inc Melitz, M.J. (2005).When and how should infant industries be protected?. Journal of International Economics, 66: 177-196. Plummer, J.D. & Cochlan, H.H. (2009). Chinese wire garment hanger producers sent U.S. dry cleaners to the laundry. Journal of International Business and Cultural Studies, 1: 1-11. Quiggin, R. & Quiggin, J. (2007). Intellectual Property and Indigenous Culture. Retrieved April 22, 2013 from http://www.uq.edu.au/rsmg/WP/WPP07_1.pdf Sarooshi, D. (2004). Sovereignty, Economic autonomy, the United States, and the international trading system: Representations of a relationship. European Journal of International Law, 15: 651-676. Read More