Motives for Government Trade Interventions and its Positive and Negative Impacts - Coursework Example

Motives for Government Trade Interventions and its Positive and Negative Impacts Student’s Name: Institution: Instructor’s Name: Date: Motives for government trade interventions and its positive and negative impacts Introduction Trade is defined as the activities that involve the exchange of goods and services, with the aim of making profit. International trade occurs when nations globally take their trading activities to an international level where they can exchange goods and services with different nation globally. International trade is applicable only when two or more nations have an absolute advantage in their commercial activities (Grossman, 2009. pg 80). One country may be good in resource endowments for producing a certain product that another country cannot or do not have enough resources for production. This will trigger a trade between the two countries where country A will import from country B and vice versa, depending on the specialization of products. The adoption of international trade by many countries has led to some interventions that are aimed at making international trade a smooth commercial activity. These interventions have a positive and negative impacts and, therefore, the discussion will identify the motives of these interventions and also the impacts. Trade interventions Trade interventions are policies and measures that are intended to allow smooth flow of trading activities (Cline, 1982.pg 55). These interventions could be in the form of tariffs, customs and quotas, they help regulate the flow of trading activities and thus there will be peace and harmony during trading. Countries globally impose the trade interventions because they have their own motives. Since international trade involves importing and exporting from one country to the next, these interventions are always meant to protect the interests of each country that imposes them. Therefore, the trade interventions are agreements between the trading nations on trading activities. These interventions come in the form of trade unions and free trade area which contribute to trade regulation. International trading is an activity that involves interaction with nations who have different interests, trade interventions will prevent disagreements during commercial activities which could lead to enmity and thus trade wars. How government intervenes in trade Government trade intervention is mainly through imposing tariffs on imports. The tariff is a form of tax that the government will impose on the imports and exports, as well. This restriction is aimed at regulating the flow of goods from one country to another. Export tariff, for example, is a tax levied on a country that exports their products and import tariff is a tax levied on a country that imports their products. The government may also intervene through banning the trade of certain products (Beard, 1933.pg 39). Motives of trade interventions When we focus on motives of trade interventions, we look at the reasons as to why countries that involve in trade form interventions. We focus on the main reasons as to how these interventions help these countries to flourish in their trading activities. Countries may have different reasons, but a few motives have been identified by studying these nations. Why we focus on international trading countries like United States would impose trade sanctions and also other renowned countries like Australia, Japan and African countries. These motives are found to be the main reasons for interventions in almost any trading nation. These motives are mainly on protection of economic, cultural and political interests of the countries. Political motives of government trade interventions The government imposes restrictions on international trade for political motives. These motives are to protect the interests of the parties that are politically oriented. They therefore impose restrictions basing on the below reasons; Protect government jobs; these interventions are always intended to protect the government jobs from being exploited by other trading countries. Let’s look at an example of China films which competed with Kodak industry for large shares of photography businesses in China market. The government of china upon predicting the competitive power of china films offered them a huge amount of money with low interest. The government burned joint business in the country because of the fear of losing their markets to foreign businesses. This was intended to protect the businesses in China and, therefore, protecting their jobs. National security, preservation; industries in every nation always depend on the government funding. Therefore, trade interventions will protect the national security on imports and exports since it will facilitate the growth of these industries without the influence of other nations due to cheap imports. Cheap imports will discourage infant industries from growing and, therefore, the dependence on government funding will decrease which will affect the national security. Another reason for government intervention is to protect their tools of security which include weapons, advanced technological equipments and minerals. This allows the country to invest stabilizing the resources that protect national security since no nation can become self reliant in the case of unequal distribution of natural resource endowments. Countries will, therefore, impose trade restrictions when they want to benefit from these tools of national security when there is peace prevailing and the trading activities are also at its peak with cheap prices (Beard, 2002.pg 50-55). Regulation of unfair practices in trading activities; some trade interventions such as free trade will influence some countries to engage in trading activities that are not favorable to other countries. Government interventions will, therefore, respond to these unfair practices and will, therefore, correct them and create a favorable trading environment. These interventions could be in the form of tariffs and quotas which may not be favorable to other countries. To gain influence over smaller nations by larger nations; when the government imposes trade interventions, for example, larger governments, they always have a motive of gaining influence over the smaller governments. Take a look at the United States for example; it has been able to establish a strong trade relationship with smaller countries such as North America and the Caribbean who depends on United States businesses (Finger, 1980. pg 45). They, therefore, have trade interventions that are favorable to the smaller countries so that they will continue gaining influence over them. Positive impacts of political motives It protects the national interest since they will not be influenced by other trading governments because of these interventions. It protects the infant industries from over exploitation by foreign imports industries; this will promote expansion and growth of these industries. It has fostered peace and harmony among nations as a result of established trade relationship which will encourage culture fusion and thus attaining international peace. Negative impacts of political motives When there is an influence of a nation over the other one, it will lead to over dependence of natural resource endowments in one country. This is because the country that gains influence will always utilize the resources of the country on which the influence will fall on them. Economic motives for government trade interventions When government imposes interventions basing economic motives, it tries to protect their nation from the impacts of international trade, which could affect their economic flow of activities and thus impacting on the country’s economy. These motives are discussed below; Protection of infant industries; when the industries are young in any trading nation, the government will impose sanctions that will protect their industries until they are past the development stages. International trading involves imports and exports which may affect the growth of infant industries due to the competition of lower import prices. It is obvious that the infant industries go through stages of development before it becomes competitive in the market, when the interventions protect these industries, they will, therefore, have access to the markets because of low competition from foreign goods. This will encourage growth and will prevent over exploitation. This is an economic motive that aims at influencing economic growth through expansion of industries in the country (Hilbert, 2007.pg 145). Goals of protecting foreign policies; the main tool of achieving goals of foreign policy is by engaging in international commercial activities. Therefore, a country may impose favorable trade policies on a country that it aims at building a strong international relationship. Take, for example, Pakistan who was rewarded by the United States during the Afghan war because it provided them a place for their airplanes to land. Kuwait also imposed trade sanctions to punish Iraq after they invaded Kuwait. If there is favoring of a nation in the trade agreements, it will help the country to attain the ‘most favored nation’ status. Some governments always impose restrictions of exports of goods that are strategic and may cause attraction to enemies when exported to other countries (Aitkan, 1992.pg 67). For example, the United States government prevents export of some technology's encryptions by restricting their companies; the government has done this even to their friendly nations because they want to restrict their policies regarding the foreign exchange. The pursuit of strategies of trade policies; when a nation is engaged in trading activities, its main aim is to accomplish some strategies such as fetching foreign exchange which will improve the overall income of that country. These strategies could also include the ability of a nation to penetrate into foreign markets and establish solid relationships. Therefore, the country may impose trade interventions because they have economic pursuit of their strategies which will contribute to flourishing in their economic developments. There is a theory that supports the pursuit of strategic policies by describing how the industries experience economies of scale and, therefore, the world market will only provide support to those few firms whose economies of scale is stable. According to Lall (1999), in this case some countries will, therefore, dominate in exporting certain products because they took the first place in finding the markets. An example of market dominance is the Boeing Company, which has dominated Airbus industry. Positive impacts of economic motives The country that intervenes in trade because of economic motives will have their infant industries protected from over exploitation by relying on imports. This will encourage growth and expansion of infant industries. This motive also encourages domestic consumption of locally produced goods because when imports are restricted, there will be a price increase which will discourage consumption of imports and thus consumption rates of local products will increase. Economic development is experienced through the pursuit of foreign strategies and this will enable the government to stabilize their economic status. Negative impacts of economic motives There will be market dominance by some countries which have already established stable markets in international trade and this will discourage some new countries in the trading activities. Cultural motives of trade interventions Often the main purpose of trade restrictions is always to protect the national culture. It is obvious that every nation has their own culture and, therefore, engaging in international trade has an impact of cultural diffusion and influence. This will cause the country’s culture to deteriorate since the citizens may be absorbed into different cultures which result of the overall change in the nation’s culture. Look at the example in Canada whereby there is a restriction on playing non Canadian songs in their radio stations (Bissa, 2009.pg 180). They do so in order to prevent diffusion of other songs that are not from the Canadian artists’ origin. Safety measures are among the government interventions to protect their culture by restricting importation of products that could be harmful to their citizens. The major products restricted are drugs such as marijuana and other products whose source of ingredients are not traced and are suspected to be from animal species that are not consumable. Take a look at this country Chile that restricted imports of such products as salmon eggs because of the assumption that they come from diseased animals. Countries have also shifted their imports, especially apparel products from China due to the fact that the country has been under some difficulties. India also does not allow the use of genetically modified organisms because of believing in quality and sustainable agricultural production (Aharoni, 1997.Pg 86). The safety measures are, therefore, meant to preserve the cultures of their nations since they will not rely on imports and, therefore, will improve the economy of the country through the use of domestic products while maintaining their culture. Emotional preservation; rice, for example, is an emotional issue when it comes to trading with Japan. They will, therefore, restrict importation of rice from other countries because they believe it’s not good for the health of the citizens. China has also imposed trade restrictions on rice importation with the fact that rice growing in their country is a form of family unity. Countries aim at preserving their cultures and heritage and thus maintain them by trade interventions. France is another country that has given subsidies to the movie industry for them to produce films of their own rather that importing films that could have an impact on their culture. India also because of emotional defense has prohibited foreigners from investing in print media. Countries that are under democratic rule imposing trade restrictions by protecting their human rights such as child labor (Diop, 2010.pg 544). Environmental concerns are also another reason for trade restrictions, which aim at protecting their environment from foreign investment. This was argued, based on the fact that these investments will lead to the outflow of their wealth since the foreigners will benefit from the investments hence they will reap the wealth from the local country. Trade restrictions are imposed to limit the investment levels of foreigners so that they will not over exploit the local countries. The restrictions may involve meeting environment policies and also enabling the host country to gain benefits from the foreigners. According to Richard (2007) when there is environmental protection, the host country will not experience environmental damage that results to pollutions and hence adverse effects of human life. Positive impacts of cultural motives Maintaining the national culture has been the main aim of the government intervention, therefore, through intervention, there will be culture preservation which will enable commercial activities without the fear of cultural diffusion. Cultural motive of government intervention on trade results of peaceful interactions of trading activities. This is due to the main aim of flourishing the commercial activities which, therefore, encourage countries to participate in peaceful trade negotiations and thus protect their cultures. Negative impacts of cultural motive Due to governments allowing foreign investments in their countries, it has resulted in the exploitation of natural resources which have an impact on the future development of these host countries. Methods used by government to promote trade Providing subsidies; most governments intervene in trade activities by providing subsidies to the infant industries and thus encouraging them to improve their production. The products of these infant industries could be marketed in the form of exports to other countries and, therefore, the promotion of trade. The aim of subsidies is to limit the foreign markets from competitive advantage over the local industries. The form of subsidies offered by the government could be tax breaks, low interest on loans and support of the production prices. According to research on the impacts of subsidies on infant industries, it has been proved that they help infant industries go through the development stage and thus attain a market growth whereby they are able to compete with international countries (Henrik, 2013. Pg 55). This form of government intervention is appropriate in developing countries which aim at attaining international growth and penetrating into international markets. Financing export activities; the government may intervene through offering support to the activities involving exports. The government does this by lending exporters who are not able to meet the financial requirements of exporting. By doing so, the government will encourage more production, which will result to advanced growth of domestic industries. Zafar (2005) explains that the financial support will also facilitate consumption of domestic products since there will be restrictions on imports while the supply of exports will be high hence citizens will opt to consuming local products and, therefore, benefiting the infant industries. Providing foreign trade zone; some government may intervene through provision of foreign trade zone with other countries. The trade zone is attained by allowing some geographical regions to specialize in trade with other countries who meet the trade customs. Due to free trade zones, the countries will benefit from the services of the trading activities which will involve opportunities for attending international conferences where they will interact and share some business ideas. These opportunities arise from government intervention and will promote growth of local markets due to borrowing ideas ( Brian, 2000.pg 248). Conclusion The motives of government interventions on trade as explained are due to the need to protect their interests. These motives have fostered peaceful commercial activities both nationally and globally and thus the countries have been able to attain their economic, political and socio-cultural objectives. Therefore, government interventions should be embraced when it comes to trade and especially international trading. It is due to those interventions that have contributed to the growth of infant industries. Reference Aharoni, Y. (1997). Changing roles of state interventions in service in an era of open trade policies. SUNY press. Aitken, B. (1992). Measuring trade policy intervention: A cross country index of relative prices. World bank publications. Al, J. r. (1994). Trade policy reform in Developing Countries since 1985 pg 63-267. World Bank Publications. Richard. et al. (2007). Dynamics of International Trade and Economy:An Inquiry into markets. nova publishers. Aswathappa. 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