Political, Economic and Cultural Motives for Governments Intervention - Coursework Example

Intеrnаtiоnаl Businеss Name Institutional affiliation Tutor Date Table of Contents Table of Contents 2 Essay Topic No. 1: Even though the world, since WW II, has witnessed great reductions in trade barriers, governments everywhere continue to restrict free trade. Discuss the political, economic and cultural motives behind government intervention in trade. 3 Introduction 3 Motives for Governments’ Intervention 4 Political motives 4 Protecting jobs 4 Preserve national security 5 Respond to unfair trade 7 Gain influence 8 Economic motives 8 Protection of infant industries 8 Pursuing strategic trade policy 10 Cultural motives 10 Conclusion 12 References 13 Essay Topic No. 1: Even though the world, since WW II, has witnessed great reductions in trade barriers, governments everywhere continue to restrict free trade. Discuss the political, economic and cultural motives behind government intervention in trade. Introduction Free trade occurs when imports and exports patterns appear without being restricted by trade barriers. Since the time of the Second World War, the world has been going through an economic reform characterized by considerable reduction of such barriers. Despite the many advantages that come as a result of absence of trade barriers, governments continually erect barriers that restrict how business is conducted (Milner & Judkins, 2004, p.105). Governments impose trade restrictions in order to pursue some political, economic and cultural interests for the sake of their respective countries. Of importance, governments must protect the domestic market by promoting it in order to ensure that the country is able to export more goods and services. When a country’s economy underperforms, trade interventions are initiated with immediate effect in order to save it. During such tough economic times, the businesses and allied workers lobby for the government to intervene in protecting the domestic market from imports that cause the reduction in jobs and businesses locally (Karagiannis, 2007, p.61). The focus of this paper will be on the political, economical and cultural motives of governments in restricting trade. Motives for Governments’ Intervention Political motives Politics play a major role in making decisions related to trade; the government officials of the day responsible for such decisions are influenced by the policy of the politicians governing the country (Milner & Judkins, 2004, p.107). This is partly because the politicians’ chances of surviving may depend on how he or she pleases the voters in order to be convinced of re-election. Contrary, trade decisions that are purely based on politics may not propel a country in the right economic direction (Irwin, 2009, p.52). There are several issues that guide the government’s political motives in trade intervention like protecting jobs, responding to unfair trade practices, gaining influence over other countries and preserving nation security as discussed below. Protecting jobs Rising unemployment rates in many countries today calls for governments to respond urgently. Rising unemployment rates in many countries have become one of the major crises which makes mandatory for governments to intervene whenever trade may threaten domestic jobs (Peng, 2010, p.37). Politicians have to respond without a choice since they are the one to be blamed for such a crisis by the citizens of their respective countries. For instance, the president of Guyana at one time urged the citizens to buy locally produced goods instead of the imported ones arguing that the imported goods are no better. She further urged the importers to behave as patriots and stop bringing goods that were not needed in the country which was crowding the shelves that would otherwise be filled with locally made goods (Karagiannis, 2007, p.62). Domestic market provides many jobs to the citizens implying that the collapse of the local industry arising from stiff competition by imports may result to unemployment. However, in certain cases, protecting jobs may be slight difficult in a market where the consumers are already decided on the products to consume (Davis, 2003, p.29). For instance, photographic film market in china is largely dominated by the Fuji films of Japan and Kodak of the United States. Chinese Lucky Film which is owned by the state experienced economic challenge by losing its market share by 7 percent causing the Chinese nationalists to call upon the government to assist the local company. A proposal had been made on a joint venture between Kodak and Lucky but the government feared that the proposal would result to the death of a Chinese brand; a consideration on whether to allow or prohibit the joint venture was thus very crucial. China’s National Association of Light Industry advised the government to ban the joint venture and instead provide Lucky film with $240 million and low interest loans in order to rescue it. The decision was based on need to ensure that the state owned company survived since the joint venture would have seen the local brand perish (Sally, 2008, p.44). Preserve national security Governments sponsor protection of industries that are considered to be essential to the nation security. Such sponsorship is not discriminatory on whether an industry is import or export-based. There are certain import goods that governments must restrict for the sake of national security (Goldstein, 2009, p.41). For instance goods as air, fuel, sea transportation and weapons must be protected since events like war may restrict the availability of such goods (Rivera-Batiz, 2003, p.33). Countries such as the United States are still struggling to prospect for oil within its borders since it depends on imported oil whose importation may be affected by war (Davis, 2003, p.51). Such security reasons are legitimate to be argued against especially because they have the support of many citizens (Karagiannis, 2007, p.79). The national security also focuses on the intervention on such imports as food supplies for countries which import such goods; such government must protect the importation of such goods since its citizen may starve in terms of war (Rivera-Batiz, 2003, p.63). Developed nations take a different approach by exposing agribusiness to market forces in order to prompt the farmers to invent new ways of risk management as well as increase efficiency (Hays, Ehrlich & Peinhardt, 2005, p.476). As a result, farmers in such nations have shifted to trying alternate crops, increasing intensive land management and biotechnology. France, one of the developed nations is facing criticisms from other nations for the protection it has given its agricultural sector. France does this by giving its farmers subsidies which are meant to ensure that they get some big financial return; the farmers have been operating on low scale implying that they experienced high production cost hence low profit margins (Sirico, 2012, p.82). France’s approach is criticized as it does not prompt its farmers to be innovative. Such a scenario would result to an added cost of producing goods which can be efficiently delivered by an international supplier. Government economic policy makers while adopting import protection policy must therefore keenly assess whether an issue is of national security concern before engaging in intervention measures (Krugman, 1997, p.134). Governments also aim to ban the export of defense-related goods to other nations based on national security motives. Industrialized nations have agencies tasked to review technologies and export goods that have dual uses, those that may be applied for industrial and military uses (Wild & Wild, 2012, p.85). Such goods are classified as dual uses and export of such goods cannot be allowed to take place without an approval from the government (Sirico, 2012, p.66). During the Cold War, such exports were banned when the Western powers and the Soviet Union were fighting. However, since the 1990s such bans have reduced as a result of lack of enforcement from some countries resulting to the increase in terrorism; rogue nations are however trying to renew the bans as they try to obtain the weapons of mass destruction (Hays, Ehrlich & Peinhardt, 2005, p.479). Some few years ago, dual-use transfer was witnessed in China arising from technology transfer. Two United States technology firms, Loral Space and Communications, and Hughes Electronics Corporation were allegedly accused of helping China to improve its long-range ballistic missile potential. The companies were being accused of using Chinese rockets while launching satellites as well as assisting the Chinese scientists to improve the technology on rocket having failed on several occasions. The two companies denied the charges and argued that the technology transfer took place with an approval from the government. Loral Space and Communications further went ahead and indicated that any material it transferred to China was readily accessible from standard engineering textbooks (Sirico, 2012, p.67). It was feared that China might sell the missile technology to Pakistan which was a close enemy of India thus creating a power imbalance in the region (Sirico, 2012, p.69). Respond to unfair trade Economic observes argue that it would be senseless for one nation to practice free trade while other nations are keen in protecting their industries. Shared amenities likes ports are used by nations to threaten others in case they perceive unfair trade as being practiced. For instance, a country may close its port to another country’s ship or overcharge tariff on goods if the other country fails to concede to some trade-related issues that are perceived unfair (Sirico, 2012, p.71). Gain influence Countries that are big tend to gain power and influence on trade over smaller nations (Sally, 2008, p.70). For instance, the United States continues to gain and maintain most events in central, South and North America and also in the Caribbean Basin. The free-trade in the region is actually made possible as a result of the strong support it gains from the United States (Kates, 2011, p.77). It is also for this reason that the United States uses its influence on internal politics to ban trade with Cuba which is a communist state. Similarly, Japan has big influence in Asia because it accounts for a large part of exports and imports in Asia. As such, Japan, used its financial might to lend money to other nations in the Southeast Asia and Asia to help them recover from the global economic crisis; though such deal, Japan expect to gain some goodwill from the neighbors (Hamada, 2009, p.15). Economic motives Protection of infant industries Infant/young industries need protection from international competition during their growth stage until they gain the status of being sufficiently competitive in global market. The argument is based on a steep learning curve (Bremmer, 2010, p.249). This means that only when an industry gets to maturity that it can acquire the knowledge needed to be more efficient, competitive as well as more innovative (Hays, Ehrlich & Peinhardt, 2005, p.478). Despite this argument being well appealing, governments are confronted with the issue of deciding the industries that deserve protection and those that do not. This may not be possible and when it turns out to be possible, it is difficult. For instance, a country like Japan has been trying to protect the infant industries, giving them low-interest loans and other assistances. From the 1950s to 1980s, Japan was very successful but this success has been going down considerably since then (Wild & Wild, 2012, p.33). As the world becomes more industrialized, governments are faced with a challenge of identifying the industries to target; otherwise the implementation of this policy would be questionable (Hamada, 2009, p.16). Another major issue of concern on this policy is the issue of supporting domestic industries from international competition which would make the local industries reluctant on innovation. Companies therefore do not put more incentives on acquiring knowledge needed to become more competitive. This was an evident case in the 1980s when the communist nations stopped protecting their domestic industries. The period that followed saw the state-owned companies being far behind than the competitors in the capitalist nations (World Trade Organization, 2012, p.7). Protecting the infant industry is rather an important policy if it is well executed by proper targeting and identification (Wild & Wild, 2012, p.31). However, it also poses a major challenge to the economy in the sense that consumers pay more for goods due to minimal or lack of competition. Companies lacking competition mean that they do not have incentives that would improve the quality of the products and lower the production costs; these costs are borne by the consumers through paying high prices (World Trade Organization, 2012, p.8). Also, companies become dependable on the protection being provided by the government. This is the issue that has confronted Japan’s industry resulting to the emergence of a two-tier economy; one is the protected and the non-competitive industries while the other is the highly competitive multinationals. The domestic industry comprising of banking, construction, property and retailing is characterized with high costs, barriers to import and overregulation. On the other hand, multinationals experience low costs since the have efficient production facilities across borders and the competition from other companies have challenged them to be innovative (Block, 2008, p.64). Pursuing strategic trade policy Government intervention can ensure that companies become first movers by taking advantage of the economies of scale. Economies of scale in production limit the number of companies that an industry may be in a position to sustain as a result of first-mover advantage (Bremmer, 2010, p.251). Strategic trade policy is meant to ensure that companies make more profits. Companies should maximize on the first-mover advantage and make more profits in order to solidify their markets. Korea is an example of such successes; shipbuilders in Korea enjoyed many subsidies from the government making them to sustain themselves (Block, 2008, p.61). This factor ensured that the companies were able to thrive during the bad economic times arising from competition. Hanjing Shipping grew to become as one of the largest cargo transporter between the US and Asia as a result of the strategic trade policy enforcement by the Korean government (Karagiannis, 2007, p.55). Cultural motives When nations seeks to restrict trade of goods and services for the purposed of national identity and protection, it can be said to be pursuing cultural motives. The culture of a country and trade are closely interrelated thus affecting each other (Trebilcock, Howse & Eliason, 2012, p.18). When goods and services from another culture are exposed to a country’s culture, the culture of the latter is altered is some ways. Government may restrict importation of goods from unwanted culture in fear that the goods may cause distress to the domestic culture (Kates, 2011, p.43). France is a typical example that bans the use of alien English words in most of the business and government communications and any form of advertisement; this applies especially when there is an alternative French word available (Karagiannis, 2007, p.69). Canada is also another country that tries to mitigate cultural influence by banning entertainment products imported from the United States. 35 percent of the music played all over Canada is required to be by Canadian musicians. Other countries across the world are also focusing on enforcing laws that would ensure that their media programming is protected from cultural influences. Any restriction on trade has its own drawbacks like for this case where restriction reduces selection option for consumers (Kates, 2011, p.72). The United States is perceived as the greatest threat to national cultures in the world over other countries. This is because the United States has immense global strength in the supply of entertainment goods, consumer goods and media (movies, music and magazines). Such goods from the United States have well-established brand names and are highly visible from consumers everywhere in the world; this prompts different lobby groups to call upon their government to protect the cultural influence from such imported goods. Protectionism policy gains a lot of public support a fact that attracts domestic producers to join in and urge the government to protect them (Kates, 2011, p.51). Cultural imperialism is a possible cause of the governments to restrict trade within its borders for the sake of national identity (Trebilcock, Howse & Eliason, 2012, p.21). Cultural imperialism aims to support the more powerful culture over the others. This support can arise from active, formal support or the general attitude of the local population that favor the powerful culture (Bremmer, 2010, p.251). However, colonialism played a major role in influencing the culture where goods of the first world invaded the culture of the third world. This explains why media products from Europe and the United States have been famous in the third world nations. Lobbying for the locals to force the government ban such products in order to promote those produced domestically (Milner & Judkins, 2004, p.54). Conclusion Trade barriers have been reduced in the world considerably to pave way for globalization; however governments do not allow free trade for the sake of the political, economical and social reasons discussed in this paper. The government of the day is appointed through a political process implying that political leaders must fulfill their promises to the electorate by protecting jobs, preserve the nation security, gain influence and provide protection from unfair trade. For economic reasons, government seeks to protect the infant industries and pursue strategic trade policies. Finally, the government has to protect its culture for the purpose of the national identity. For these reasons, governments impose restrictions which most ban imports in order to pursue such political, economic and cultural motives. Such restrictions that restrict free trade have their own drawbacks but they tend to comply with the wishes of the domestic markets. References Block, W. (2008). 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