GOVERNMENT AND INTERNATIONAL TRADE
International trade theory is not able to accurately describe the actual
conditions that occur. Although various institutions and organizations
continue to try to eliminate barriers to international trade, until now these
barriers are still run by some countries.
A. Government Intervention in International Trade
The existence of a free trade pattern characterized by trade flows
(exports and imports) that occur without trade barriers has provided great
benefits for the global economy. However, the government still has
intervention in the trade of goods and services.
1. Political Motives
The political motive behind this government intervention is related to
the government's efforts to maintain the availability of jobs, maintain
national security and respond to unfair trade practices. The government
will intervene if the flow of free trade actually has an impact on the loss
of jobs in the country concerned. Similarly, the development of
globalization that creates various risks for domestic companies will
encourage government intervention to maintain national security. This
national security is related to the security of the community, economy
and the environment. If there is a country that practices unfair trade
practices such as setting very high tariffs on imported goods, then the
government tends to threaten to do the same. In addition, another goal
of this government intervention is to gain great influence over small
countries.
2. Economic Motives
The most common economic motive behind government intervention
in international trade is to protect infant industries. Based on the infant
industry argument, small industries in a country must be protected from
various international competitions until they have enough
competitiveness to compete in the global market. This argument is based
on the idea that as the industry grows, the ability to innovate, efficiency
and competitiveness will also grow. However, this idea has some
drawbacks. First, there are difficulties in determining the type of
industry that must be protected. Second, government protection actually
limits industry incentives to innovate and reduce production costs.
Third, this argument states that small industries need funding from the
government due to difficulties in obtaining funds in the capital market.
But in reality, there are currently many sources of private funding that
are willing to invest their capital in promising industries
Another economic motive behind government intervention is to
achieve a strategic trade policy. This idea is related to a new trade theory
that states that government intervention can help companies achieve a
first-mover advantage. Furthermore, the existence of this strategic trade
policy can provide great benefits in the form of increasing national
income. Companies that have a first-mover advantage tend to earn large
profits and can have a superior position in the global market. However,
this strategic trade policy also has shortcomings. This is because this
government assistance can cause inefficiencies and high production
costs in the industry concerned.
3. Cultural Motifs
It is not uncommon for the government to restrict the flow of trade in
goods and services for the purpose of protecting national identity. These
cultures and trades are interconnected and influential. These various
influences of international trade can lead to cultural imperialism. The
negative influence of international trade on the cultural existence of a
country can encourage the government to limit imports.
B. Methods Used by the Government to Promote International Trade
In the previous section, various motives of government intervention in
international trade were explained. Furthermore, various instruments in
government intervention consisting of trade promotion and barriers will be
discussed.
1. Subsidies
Subsidies are financial assistance provided by the government to local
producers or companies, either in the form of cash payments, loans with
low costs, tax relief, product price support or in other forms. The
provision of subsidies aims to assist local companies in increasing
competitiveness with foreign companies. This can be in the form of
increasing competitiveness through export activities. Although subsidies
can provide benefits in the short term, some parties say that the provision
of these subsidies actually has a negative impact in the long term. This
negative impact can be in the form of increased production inefficiencies
from competitive industries. In addition, the provision of this subsidy is
also detrimental to consumers because generally these subsidy funds
come from income tax.
2. Export Financing
This export financing is intended to assist companies in financing
their export activities. This is done through lending with interest rates
that are generally lower than market interest rates. In addition, the
government can also provide loan guarantees or known as loan
guarantees for companies. With this guarantee, companies can more
easily obtain loans
3. Foreign Trade Zone
Some countries promote trade by creating foreign trade zones (FTZs).
FTZ can be interpreted as a geographical area, namely the flow of goods
occurs through simpler procedures. These FTZs generally aim to
increase the number of jobs through an increase in the amount of trade.
4. Special Government Agents
Some countries have difficulties in socializing regulations or policies
that have been set. It is not uncommon for companies to feel confused
about whether there is a tariff or quota policy on the products traded.
Thus, to overcome this problem, the government generally establishes a
special agency tasked with promoting export activities. The presence of
this special agent is very helpful for small and medium-sized businesses
that have limited resources.
C. Methods Used by Governments to Block International Trade
It has been explained that this government intervention can also be in
the form of establishing trade barriers. There are two main categories of
barriers to international trade, namely tariff barriers and non-tariff barriers.
1. Fare
Tariffs can be classified into three categories consisting of export,
transit and import tariffs. Export tariff is a tariff set by the government
for export products or goods. This export tariff is generally set when the
price of the exported product is lower than the actual price. Furthermore,
transit tariffs are set for products that cross certain national borders to
the final destination or destination. This transit tariff has been abolished
with the existence of an international trade agreement. In addition, there
is an import tariff which is a tariff set on imported goods. These import
tariffs are divided into three types, namely ad valorem tariff, specific
tariff and compound tariff. Ad valorem tariff is a type of import tariff
that is set at a certain percentage of the price of imported goods. Specific
tariff is a type of import tariff in the form of a fee or cost per imported
product. On the other hand, compound tariffs are a combination of the
two types of import tariffs beforehand. Generally, the determination of
this tariff has two main objectives, namely to protect domestic producers
and earn income
2. Quota
Quota is a limit on the number of goods that are allowed to enter
(import) or export (export) from a country in a certain period. This quota
is the most frequently used type of trade barrier after the tariff. Generally,
import quotas have the purpose of protecting domestic companies from
more competitive foreign companies. This is done by limiting the
number of goods that can be imported during a certain period. On the
other hand, export quotas have two main objectives. First, the export
quota aims to maintain the amount of raw material supply available in
the domestic market. This motif generally applies in developing
countries that often export natural resources used in production
activities. Second, this export quota also aims to limit the amount of
supply of goods in the global market to increase the price of these goods
3. Embargo
An embargo is a complete ban on the trade in certain goods. This
embargo applies to both export and import activities. This embargo can
be set for a specific type of product or for all products as a whole. This
embargo is the most restrictive form of non-tariff barrier and is generally
used to achieve certain political goals.
4. Local Content Requirements
Local content requirements require companies operating in the
domestic market to supply a certain number of goods or services. This
requirement can be a statement that a certain part of the final product
must consist of domestically produced goods. The purpose of these local
content requirements is to force foreign companies to use local resources
in their production activities, especially labor. These local content
requirements are often used by developing countries to accelerate the
industrialization process.
5. Administrative Delays
This administrative delay can be in the form of regulations or
bureaucratic regulations designed to hinder the flow of imported
products. These non-tariff trade barriers can be in the form of various
government actions such as requiring a product inspection process that
can damage the product, requesting certain documents or other actions.
The goal is to discriminate against imported products. Thus, this obstacle
is also referred to as a form of protectionism.
6. Currency Control
Companies that carry out import activities generally need foreign
currencies such as US Dollars, Euros or Yen to pay for the imported
products. In other words, when you want to make a payment, the
company needs to convert the currency. The government generally
restricts currency conversion activities with the aim of reducing
imported goods. This can be done by setting an inappropriate exchange
rate
D. The Role of International Institutions in Supporting the Promotion of
International Trade
Extreme economic competition among nations has prompted two
world wars and created the worst global economic recession of all time. As
a result, economists and policymakers propose that countries should come
together and form a trading system that helps avoid similar events in the
future. Subsequently, in 1947, 23 countries united and formed the General
Agreement on Tariffs and Trade (GATT). Initially, the organization was
quite successful in reducing the average tariff rate and increasing the volume
of international trade. However, in 1980, there was a trade conflict that gave
rise to increasing various forms of non-tariff barriers up to 50%. In addition,
during this period, the services sector that is not regulated in the GATT
agreement began to have an increasing proportion in international trade.
After GATT, a new international organization known as the World
Trade Organization (WTO) was formed which aims to regulate trade
between countries. The WTO was formed to replace the GATT, but still
adopts the various agreements set out in the GATT. The WTO has three main
objectives, namely helping to facilitate the flow of goods and services,
helping to open new markets and helping to resolve various disputes
between member countries. Thus, it can be seen that the presence of these
various institutions and international organizations greatly encourages
international trade.
