Government Intervention in Trade - Coursework Example

Running Head: Government Intervention in Trade Government intervention in trade Customer name: Institution: Customer’s Course Tutor’s Name 24th April, 2013. Introduction The essay gives an explanation of why there is interaction of governments and businesses. It is through different motives that governments intervene in any activity taking place in trade. Among the political motives, there is the issue of imports and exports and at the same time the obligation of governments to protect domestic jobs with the aim of providing national security. In the economic motives, it is the responsibility of the government to act as a watchman over small industries until they realize the full growth where they can be exposed to other companies internationally. Lastly, it is the task of the government to have cultural motives in order to maintain a national uniqueness and identity. There are therefore three motives that make a government to be involved in trade. In an international context, the government has to protect the domestic market where they come in to help when trade is being faced with harsh economic conditions. To a greater extent, governments protect trade due to political motives where many trade decisions are based on political policies and some of them may include protection of jobs. Among the political motives mentioned is assurance of protection from harsh environments in the imports and exports sector. In a situation of imports, it is the work of the government to protect their industries. In the economic motive, it is the aim of the government to ensure protection of infant industries against international competition. Finally in the cultural motive, there will be a discussion of protection of national culture. Political motives Taking the example of a country like China, they have Lucky film which competes against Kodak. As a result of protecting the business that belongs to their country; they offered low interest loans which eliminated joint ventures that would have seen Lucky film belonging to another country. Many goods have to be available in any country and this serves as a way of ensuring that there is employment all year round. It is also a political motive when the government wants to preserve security nationally(Menza, 2000). The development of industries indicates the level of national security there is in a country. Governments therefore have to come up with subsidies and incentives to boost companies and this is the only way a country will generate more in terms of income hence a secured monetary future. With governments coming in to sponsor companies, there is assurance of protection from harsh environments in the imports and exports sector. In a situation of imports, it is the work of the government to protect their industries(Bhanot and Kadapakkam, 2006). Taking the example of the agricultural sector, many countries will do anything to ensure that they are protected as this may be the only source of income being gotten internationally. In the case of exports, it is the duty of the government to ensure that there is restriction of goods that may harm a country and its citizens. Many governments restrict the export of defense related goods as they can be used for the wrong purposes. It is also a political motive for the government to make it their responsibility to respond to other country's unfair trading practices. This comes in when a country practice free trade; it may encounter unfair practices where a country can be taken advantage of in terms of exports and imports. This is therefore the responsibility of a government to impose tariffs and quotas that controls the quantity of products being traded in the country. It is therefore logic not to practice free trade if other countries are restricting theirs. This makes governments have control over other countries hence an indication of political stability(Teske, Best and Mintrom, 1994). As a political responsibility, it is the work of the government to have the ability to influence other countries. This comes in clearly in governments that are big and have the ability to dominate trade relations over smaller countries. Taking an example of the United States, the country is dominant over many countries through creation of trading relations. This makes the government have influence over others and have a strong political stand over other countries(Lehne, 2006). Economic motives One of the reasons that a government may want to involve itself in trade activities in the country is protection of infant industries against international competition. An infant industry should be taken care of as it develops and has the ability to stand on its own before being exposed to international markets. With this, it is the responsibility of the government to make sure that a company has sufficient knowledge and skill in order to be exposed to the outer market. This makes a company have tactics and strategies on how to be competitive hence remain stable in the long term competition(Peltzman, 1976). Protection on the other hand can be removed once the government is comfortable with the capital and innovativeness that the company has attained through the protection period. Several disadvantages may be seen while protecting companies as governments may make mistakes on which countries need to be protected or not. With too much protection, governments hinder their level of a company’s innovation hence slow growth. It is also an economic motive for the government to strive in its strategic trade policies. This is enhanced by increasing the level of income. It is therefore the work of the government to support trading activities in the country in order to generate more profit and with this, governments help companies in identifying strong positions globally. It is also a disadvantage where governments cause inefficiency as in the year 1990 where some companies in South Korea experienced higher costs with the aim of government intervention in their trading activities (Medema and Boettke, 2005). Other economic motives that the government may want to be involved in trade are to give information to investors. It is the government's responsibility to ensure that all trade members are fully equipped with information that will help them in investing activities. The government intervenes by making sure that there are proper prices given to goods and investors are educated on the right strategies to engage in a county’s trade. It is also the economic motive of the government to ensure that there are no monopoly practices in the country that will ensure consumers being taken advantage of. If in any case there is such existence, the government intervenes by asking for a share of control in the trading activities. This ensures that the same market can be accessed by others hence competitive behavior is adopted where there is a fair price distribution (Reimer and Stiegert, 2006). Distribution of wealth in a country is the work of the government hence it has the responsibility to involve itself with trading activities. The taxation policy comes in hand to ensure that the government gets a share of the profits being earned and it is this way that governments are able to meet the needs of the public through provision of products companies would not involve themselves in production. Cultural motives Every country has its own unique culture that is meant to be protected from external forces. It is the task of governments to have cultural motives on the type of goods being brought into the country hence imposing of tariffs and quotas in certain goods plays a role in restriction of goods that do not support a country’s culture. Governments have cultural objectives where the national identity has to be protected from cultural erosion(Kindleberger, 1978). With an example, Canada had to impose a ban on music on some types of music that was being aired on radio stations as it was an indication of cultural erosion. As a way to protect the culture, Canada ensures that almost thirty five percent of the music played comes from the country. Due to the strength that the United States has over other countries, it is seen to be the greatest threat in culture erosion hence the need for all governments to be alert on cultural protection(Su and Wong, 2002). Conclusion To make a conclusion of the above discussion, the introduction begins by stating that it is through different motives that governments intervene in any activity taking place in the trade. Three motives have been mentioned why the government has the responsibility to intervene in trade activities. As a political motive, it is also a political motive when the government wants to preserve security nationally. The development of industries indicates the level of national security there is in a country. Governments therefore have to come up with subsidies and incentives to boost e companies and this is the only way a country will generate more in terms of income hence a secured monetary future. A cultural motive that has been mentioned is that governments have cultural objectives where the national identity has to be protected from cultural erosion. With an example, Canada had to impose a ban on music as some types of music that was being aired on radio stations was an indication of cultural erosion. An example has also been mentioned that shows how a government protects their culture. Canada ensures that almost thirty five percent of the music played comes from the country. There is much concentration on the economic motives that makes governments intervene in the business where protection of infant industries against international competition. An infant industry should be taken care of as it develops and has the ability to stand on its own before being exposed to international markets. With this, it is the responsibility of the government to make sure that a company has sufficient knowledge and skill in order to be exposed to the outer market. Another economic motive that has been mentioned is the government intervenes by making sure that there are proper prices given to goods and investors are educated on the right strategies to engage in a county’s trade. It has also been mentioned that the economic motive of the government is to ensure that there are no monopoly practices in the country that will ensure consumers being taken advantage of. If in any case there is such existence, the government intervenes by asking for a share of control in the trading activities. To make a summary of all the above, it is a necessity for the government to involve itself in all trading activities. References Bhanot, K. & Kadapakkam, P. (2006). Anatomy of a government intervention in index stocks: Price pressure or information effects?. Journal of Business 79 (2): 963–986 Dennis, P. & Strickland, D (2002). Who blinks in volatile markets, individuals or institutions?. Journal of Finance, 57, 1923–1949. Kindleberger, C. P. (1978). Government and international trade. Princeton, N.J.: International Finance Section, Dept. of Economics, Princeton University. Lehne, R. (2006). Government and Business: American political economy incomparative perspective.Washington, DC: CQPress. Medema, S. G., & Boettke, P. J. (2005). The role of government in the history of economic thought. Durham: Duke University Press. Menza, J. (2000).”Political sociological models of the U.S. new deal”.Annual Review of Sociology, 26, 297-322. Peltzman, S. (1976). "Toward a more general theory of regulation". Journal of Law and Economics 19 (2): 211-240. Reimer, J. & Stiegert, K. (2006). Imperfect competition and strategic trade theory: Evidence for international food and agricultural markets. Journal of Agricultural and Food Industrial Organization, 4 (6). Su, Y. & Wong, R. (2002). “The impact of government intervention on stock returns: Evidence from Hong Kong”. International Review of Economics and Finance ,11, 277–297. Teske, P.,Best, S.& Mintrom, M. (1994). "The economic theory of regulation and trucking deregulation: shifting to the state level" Public Choice 79: 247-256. Read More