Governments Motives of Interventions into International Trade - Essay Example

Name of the Student] [Name of the Institution] [Course Description] [Registration Number] [Date] Governments’ motives of interventions into international trade Introduction The aftermath of the Second World War was among others, the formation of various trade organizations which were formed on the basis of doing businesses on a counter system. Nations could do business with others after the removal of various barriers to trade in those countries. Barriers to trade in this case represent the restraints on the flow of international goods and services imposed by host governments. According to Czinkota and Rivoli (1989), for many years after the war mentioned above, a free market has been advocated for, mostly by economists. This is a free market whereby the domestic price equals the world price of a product. This was occasioned by the limited supply of different products domestically, thus prompting foreign producers to boost up supply to meet the local demand. There are many advantages associated with free trade. Some of them include growing international relationships, which has further importance, and improvement of economies. One important aspect though of this trade is the absence of the government restriction thus encouraging such trade. The market in this case becomes a function of the forces of demand and supply and the market share of a firm internationally depends on its competitiveness. In the end, they get the incentives to advance in quality innovations. These innovations lead to decline in cost of production, which eventually favors consumers through production of quality products at favorable price. However, despite these advantages, governments have in most cases intervened in controlling this trade, of course with various underlying motives. This study seeks to discuss these underlying motives of the governments’ involvement to international trade (Daniels and Radebaugh p.26) In order to address the topic of discussion effectively and to come up with a well-defined analysis of these motives, the study is classified into three different motives of discussions: economic, political and cultural motives. Political motives The formation of every government is based on politics played in that particular county. Every government comes in with different many promises to its citizens. The general aim therefore of every government is to please its citizens by any means necessary as per the demands and requirements of every democratic scene. This involves numerous interventions in economic activities like trade (Drucker p. 21). Trade components include domestic and foreign businesses competing for markets within a country and beyond. Focusing on a particular country, the government too becomes an important component especially through its interventions. The government through political motives may change the nature of international trade in the country occasioned by the following reasons. Foreign goods and services come into a country with increasing demand for them by the local consumers. In this case, their demand will be higher than those of the local (domestic) goods and services. This may affect specific domestic industry thereby decreasing the demand for their products. Both the long run and the short run effects of the above are the decline in the profit performances of those industries. They will lay off some workers to keep up with costs of production. It is true that unemployment rate is one of the key macroeconomic problems that any government needs to address with utmost priority. To protect and create the domestic job opportunities, the government imposes restrictions on the foreign goods and services to ensure a balance of demand for both local and the foreign products (Feenstra p. 34-71). The motive of the government intervention may also be based on its effort to preserve or protect national security. Any government’s first priority is always the security of its citizen. Close examination of different product is therefore very important for this agenda as far as government is concerned. Such examinations affect trade internally in various ways. In this case, industries considered important for national security therefore always have government protections. On the other side, foreign companies rivals to these industries gets government restrictions. This applies to both exports and imports. Within this context, certain imports are often restricted due to reasons of their nature which may need close security analysis or their flow may cause some security threats to the nation. The government examines their domestic supply, for instance, of products like fuel and weapons. Transportation services like in air and sea are also of great important for the government’s examinations generally due to their nature which may pose security threat to a country. Agricultural products are protected by some countries for purposes of national food securities (Ghauri and Usunier p. 22). Most governments restrict importations of goods particularly weapons for reasons of national security. This motive for restricting exports from other countries is based on the fact when trade of products like weapons are left free from government intervention, crime rate, terrorism and other ill-natured activities may rise in the country. More than that, the country may also be very vulnerable to war because a lot of weapons will be in wrong hands. This can be due to the nature of such products, for instance, defense related products like technologies or dual products, products with both industrial and military applications. Most of these products must be approved by the government. The motive of the government may also be based on the principle of fairness. As a retaliatory measure, a government may impose restrictions to products from another country if that country does actively protect their industries. In this case, the government, out of the politics of unfairness in trade, will restrict products of a country which does not concede certain trade issues (Goldsmith, 1989). Governments of developed nations may get into trade with other nations from the developing world to gain influence over them. In this case, the put measures of goods entering their country so as to maintain their influence those smaller countries. Japan and USA are examples of the countries maintaining their influence in Asia and America respectively. Cultural motives Commitments to cultural principles affect economic activities, like trade, in different ways and different perspectives. These effects normally extend into the international business arena. Cultures as a way of living always shape the country’s politics and therefore the government in place. In this case, the government is directly subjected to culture existing to that country. Therefore, it is a fact that the effects of cultural practices on international business do not only depend on ethnicity, religion, language or artistic interests, but also depend on ideological orientations. It is also true that cultural ideas travel throughout the world and its foundations spread across borders. In this case, the modern world has series of mixed cultures with exception of some instances whereby the country is identified by their culture. However, in the ancient times, before the Second World War, different societies in different nations held fast their cultures. It is therefore evidenced that most government can intervene in trade to protect their national identity. In this case, the government’s aim, in the present of some cultural objectives, is to ensure that the cultural normalcy is not interfered with. This scenario is very common in countries known to have strong cultural origins. The government in such countries can restrict trade so that the country is protected from unwanted cultural influences that can cause cultural discords among the citizens. Certain importations, therefore, that culturally offend the cultural principles of the country may be blocked by the government from getting into the country to pursue this goal (Lowenfeld p .9). The cultural domain of a government is a very comprehensive, within the government, society and within boundaries. The cultural orientations may force the government to intervene in international trade to reshape the business law structures based on the societal and religious code of conducts. Different systems of government support different business laws which affect international trade in various ways. Economic motives Different economies differ in terms of size and growth. Some of the reasons for this difference are the amount of economic activities and the level of technological advancements that boost the economic growth and developments. More importantly, the government of these economies plays various roles in ensuring steady growth of the economy. These roles are played in different patterns depending on each country (Berg and Lewer p. 101). At the same time, international trade can also be termed as one of the important economic pillars of many countries in the world, especially after the Second World War. Therefore, the government involvement to trade is subject to discussions with respect to economic context. The following reasons support the government economic motives to intervene in trade particularly at the international scene. One of the reasons why the government may intervene in international business from economic point of intention is to pursue some strategic trade policy. Trade policy is a law imposed by the government in relation to exchange of goods and services which are involved in international business. They include taxes, subsidies and other import and export regulation standards. The main aim of such policies is to control foreign trade (Kindleberger, 1978). In this economic context, the welfare of the local firms can be alleviated if the government adopts favorable trade policies. This is possible because such policies will shift profit from foreign firm to domestic firm. Strategic trade policy therefore is a policy that a government adopts so that it can affect the result of the strategic interactions between different firms in an international business, especially in industry dominated by few firms. Such policies increase the welfare status of the domestic firms through increased profits thereby increasing the national income of the country. As a result of these policies the domestic companies can take the advantage of economies of scale in production and be the first movers in the industry, hence raising their level of welfare as far as profit making is concerned. These companies will also be able to strengthen their position in the global market .In the long run the national income of the country will be raised. However, such policies, in as much as they boost domestic firms, they have serious disadvantages in the long run. Inefficiencies in production come in, especially when domestic firms are free from foreign completion, thereby affecting qualities of production. In addition, most government direct industrial support to particular firms based on political intentions. In this case, chances are high that these firms may not consider consumerism in their production as an aim of satisfaction but may end up exploiting consumer (Jones p. 51-95). The other reason for government involvement in international trade is to protect infant industries. Growth of an industry is a gradual process which has various challenges and emerging issues. Competition is among others, one of the great challenges an industry can face. It may become more challenging particularly if the industry receives serious competition from an international context of business. Therefore the government may intervene to protect such emerging industries at their development stage to the point where they are proven sufficiently competitive at the international scene. However, this intervention has its disadvantages too because it limits the contentions of the company in the context of advancement in innovations. The incentives of acquiring more knowhow to become more competitive internationally are reduced and this makes the industry more vulnerable to the periodically changing global business. More than that, lack of competition creates little incentives to reduce production costs or improve quality of the industrial products. As companies relies so much on protection, consumers will end up paying more for the products, hence poor welfare of the consumers because of the price and quality exploitations. The government may also intervene in the affairs of international ventures to derive revenues. Most governments get revenues through taxing imports and imposing custom duties on the same so as to collect revenues. Mostly done at the points of entries, the government collects various revenues for economic budgetary purposes (Krugman, 1986). It is true that most governments encourage exportation of products from other companies doing business in their country because of the economic advantages that comes thereafter, for instance bringing in foreign currency and improving their economy. However, it is the government prerogative to monitor the extent to which the citizens acquire cheap foreign imports at the expense of the domestically manufactured products. Conclusion The current system of international trade in the world, particularly after the Second World War has been focused on improvements of production techniques and most global businesses have embarked on technology employment strategies to survive in the market which has become very competitive in nature. The repercussions of the government’s involvement in this trade may impose both advantages and disadvantages to these global firms especially when its agenda is put into focus. More importantly, competitiveness of firms has eventual benefits to the end consumers which are the normal citizens of a country. Governments for whatever reasons should therefore promote competition and therefore trade so that numerous advancements are realized. Through the World Trade organization (WTO), numerous campaigns and efforts have been raised to have governments-free trade in the world. This has been done by advocating for the removal of existing barriers to trade among different countries. However, as discussed above, the government may only intervene in trade if it feels through its intervention; it will be of some political, economic and cultural advantages to its people. References: Berg, H., & Lewer, J. J. (2007). International trade and economic growth. Armonk, N.Y.: M.E Sharpe. Czinkota, M. 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