Government Trade Intervention - Coursework Example

Running header: Government intervention in trade Student’s name: Instructor’s name: Subject code: Date of submission Government trade intervention The government has several roles which it playa in the market. One of the roles it plays in the market includes the protection of the rights and freedoms of consumers. It also seeks at the ensuring of the adherence to the law by the individuals and the parties to the trade. The government intervenes in the trade of in the country for several reasons. The reasons for the intervention may be political, social or economic. Intervention in the trade is for three main purposes (Beard, 2003). The first purpose is to continue improving the performance of the economy of a country. Another purpose for this is to eliminate market failure. This is through the putting in place of such strategies as to reduce the chances of market failure and assure development is achieved. Another reason for intervention in the market is to achieve equitable distribution of income and wealth among the citizens and other players in the market. The government has vast resources to its advantage. The use of such resources in trade may turn out to be very beneficial to the government in the undertaking of its mandate to the citizens. The government has power and oversees all trade activities that exist within its boundaries. As such, it may put in place strategies that may help reduce and eliminate the bad traits that may be there in the market. This can be through putting in place restrictive measures or its entry in the market as a competitor. One of the reasons for intervention in trade is for national security reasons. This is especially so in the industries which deal with the manufacture of defense weapons. The government does not feel secure for the defense input to be produced by other parties rather that itself (Peláez and Peláez, 2008). This is usually in order to prevent the chances of such weapons falling in the wrong hands. Through this, the government will be able to produce and use weapons safely. The benefit of reduction of the chances of such falling into the hands of criminals is that it increases national security. Since security is the mandate of the central government, it is able to undertake this role effectively. Another reason for government intervention in trade is the protection of infant industries. The government protects them from the excessive competition from other firms and international firms. Through this, it enters the markets through several means. First, it can offer subsidies to the firm that it is incubating. This will help increase its ability to survive in the market. It can also put in place such things as increasing the regulations for other firms to limit their presence in their country. The governments often support infant industries if they see that there is potential for the infant industries to excel in their operations. This is where they foresee large external benefits from the growth of the infant industry. There may also be the prospect of better non-economic benefits that arise from the growth of the infant industry. This has the disadvantage in that it can result to prices of the goods and services rendered being high. This is due to the absence of competition. It creates fewer incentives for the improvement of quality of the goods or services that are rendered. The prices also due to the lack of competition are placed at a high level to an extent of consumer exploitation. Another disadvantage is that the government may make errors in the distinguishing of which industries to protect and which ones not to. This can make it to use resources of which returns will not be made. Another reason for government intervention in trade is to reduce and prevent of exploitation of the customers and the retailers and businessmen.. This is through the setting maximum prices that can be charges for commodities and prices. This is well known as price floors. The businesses in the market cannot charge prices higher than this. Through this, the prices that will be charged will be reasonable to the customers. They can hence afford to buy the commodities, goods and services that are being offered in the market. Lower prices of goods and services make them affordable for even the lower income group of citizens. The government also intervenes in the trade for preventing the business people from being exploited by the consumers. This is through the setting of lower prices that can be charged for commodities, goods and services. The minimum price that is set by the government is known as the price ceiling. The businesses cannot sell their commodities and goods for prices lower than that set by the government. This enables them to make adequate returns on their investments. This also has the advantage of creating fair competition in the market. Through the regulation of prices, firms cannot charge extremely low prices at the expense of the others. The government also intervenes into trade with the purpose of creating employment to the unemployed citizens. This is through putting in place balance mechanisms between the costs of higher commodity prices and the costs of unemployment. This is solely for maintaining the domestic jobs for its citizens. This is usually with a protectionist approach. It sees to it that the domestic industries are shielded from the international competition. Through this, they will be able to offer employment opportunities to the home citizens. Another reason for government intervention in trade is the control of services that are considered to be critical to the country. The services can hence not be entrusted on the private individuals and hence the government ensures that it controls them. They include the provision of electricity and water services to the public. This are services that if left to the control of individuals would result to exploitation of the citizens. Such services are in most cases. They therefore have monopoly power over the market. The monopolies have a disadvantage of having full control over the market. They are also not subject to any competition whatsoever. They are therefore set their prices for commodities goods and services. This has the disadvantage in that they usually charge higher prices for the goods and services that they offer to the consumers. Similarly, the absence of competition makes them pay little or no attention to the quality and quantity of goods and services that they offer. Low quality goods and services may be rendered to the consumers. There is also unfair competition in the in that they are not subject to many restrictions as opposed to the others in free competition. As such, government intervention in trade in the case of monopolies results to the rendering of services that are below standards. The government also intervenes into trade with the reason of protecting its industries. This is done through putting in place of regulations and restrictions that ensure that unfair competition that may occur has been eliminated completely. Unfair trade may result to collapse of businesses that are crucial to the government. As such, The government seeks at eliminating it through the protection of its industries. This is enhanced through the use of tariffs that limit the number of international firms that exist in the domestic market. Another reason lying behind the intervention of the government in trade is the desire to gain influence over other countries (CTV Television Network, 1994). Some major world countries engage in business to so as to have great influence over the small counties. Through having of influence, it will be easier for them to sell their policies to them and other attributes that they seek to transfer. Methods of intervention The government uses different methods to intervene to trade in its borders. They include; a. The use of subsidies. Subsidies are financial aids that are offered to domestic producers with a motive of boosting performance and to counter the power of the competitors. It may come is different ways such as low interest loans, support to the prices of products, tax holidays and cash payments. They help boost the returns that are made by the industries and help in the combating of competition that exists in the market. They are however subject to some limitations. They include that they are said to increase inefficiency and complacency in the market. This is because they cover the costs that are supposed to be absorbed by the competitive industries (Michalos, 2008). They are also said to be of benefit only to the industries and are to the expense of the consumers. They are termed as short-term relief to the businesses and not a long term solution to the issues that exist. b. Another method is government intervention is export financing. This is where governments help industries to support their exports through the issuing of loans and other guarantees to them. This has the benefit of supporting the small industries that are beginning to exports their commodities. It however has some demerits that are attached to it. Questions are raised over the support that is rendered to the multinational companies. This is seen as a waste of the resources of the government in the support of already well-established companies that can cater for their expenses with the absence of export financing. c. The use of tariffs –tariffs can be defined as special taxes that are levied by the government for products that are entering or leaving a country. The use of tariffs has several benefits to the government and the industries in the market. The first benefit is that they protect the domestic producers (Trebilcock and Eliason, 2013). This is through the raising of the prices of imported goods making the locally produced ones cheap and attractive to the consumers. Another benefit of the use of tariffs is that they are a source of revenue for the government of the land. d. The use of quotas – quotas can be defined as quantity restrictions that are imposed by the government on the goods entering or leaving a country. They have a benefit in that they protect the domestic producers by limiting the quantity of goods that are entering the country. They however have the demerit to the consumers (Thies, 2013). This is because they result to higher prices of goods and services. They also result to limited selection of the goods that are available to the market. e. Use of embargoes – they can be defined as complete bans on trade to the import or export of certain goods and services. Through the restriction of imports, they help the local industries to thrive in the domestic market. They are however not advantageous to the consumers. This is because they attract high prices of goods and services. They also reduce the selection available for the goods present. References Beard, G2003, Government intervention in trade, Manchester, Heywood Ltd. Peláez, M& Peláez, A2008, Government intervention in globalization: Regulation, trade and devaluation wars, Basingstoke, England, Palgrave MacMillan CTV Television Network, 1994, Trade barriers, Toronto, CTV Program & Archive Sales Michalos, A2008, Trade barriers to the public good: Free trade and environmental protection, Montreal, McGill-Queen's University Press Trebilcock, J& Eliason, A2013, The regulation of international trade, Abingdon, Oxon, Routledge. Thies, A2013, International trade disputes and EU liability, London, Rutle Read More