International Trade Vs Government

In today’s worldwide economy, many organizations have benefitted from international trade due to the growing customers source from the foreign markets. International trade refers to the scale of services and goods across the borders. The importance of trade have seen an increase by many national governments upon witnessing how exports have boosted the success of their country’s domestic organizations by generating more domestic jobs. The introduction of international trade have created many favourable contributions to the economic development of many countries through various channels. The aim of the development of a national trade policy is to safeguard domestic firms from foreign competitors and to boost exports. However, the trade policies

However, many have also argued that government should let domestic and foreign firms engage on equal terms. On the other hand, free trade refers to the international market policy where government do not influence the imports and exports of domestic firms. The outcome of these arguments are usually measured by the impacts caused by foreign market to domestic market and the profitability of foreign investments.

Government intervene in trade due to several objectives of political and economic motives, however all these motives may have its pros and cons.

Political Argument

There are various political motives behind government intervention, these motives includes preserving national security, protecting human rights, protecting consumers, protecting jobs, retaliation over foreign competition and furthering foreign policy objectives (John et al, 1999).

Protect National Security

Protecting national security in certain industries that are essential for the country especially for the domestic supply in defence industries. For example the supply of fuels, weapons, aerospace and advanced electronics. It is important for national government to be self-reliant and ready to pay the price of inefficiency should there be any case related to its national security (Hill,

Due to lack of competition, consumers often have to pay more for a lower quality products. For example Japan’s protected domestic industries is categorized into two category of non-competitive industries and competitive multinationals. In the category of non-competitive industries, higher costs is required due to overregulation and import barriers but competitive multinational category gets to enjoy low cost advantage due to their efficient production.

Strategic Trade Policy Benefits: Government pursue strategic trade policy to help domestic firms increase national income by taking advantage of economies of scale that gain first-mover advantages. Firms with first-mover advantages earn profits because number of firm in an industry is limit by economies of scales. For example, Chaebol in South Korea helped firms to tide through economic crisis die to the vast range of industries they engaged.

Drawbacks: No doubt to its benefits, there can be drawbacks to the trade policy as well. Government’s support to domestic firms had caused high costs and inefficiency for firms in Japan and South Korea in 1990s. Government assistance to firms are often subjected to political lobbying in specific industries that could obtain gains without benefitting consumers. Consumers may even end up paying more for lower quality products that they could