GOVERNMENT INTERFERENCE IN TRADE
There are often good reasons why governments get involved in
international trade between countries. Let's take a look at some of the
main motivations.
Political Reasons
Keeping people employed is huge - nobody wants high unemployment on
their watch. While trade in general lets us make stuff more efficiently,
politicians sometimes step in to "protect jobs". Security is also a big deal -
nations want to be sure they can get important goods if needed. It's only
fair too - if others put up barriers, we might too to force them to relax the
rules. Powerful countries may interfere to have more sway over smaller
partners too.
Economic Factors
The "infant industry" argument is that new industries need shelter at first
as they learn the ropes before facing overseas competition. However, it's
difficult to predict what industries will succeed. Protection can also breed
complacency. Some trade strategy aims to help local companies gain an
edge over rivals abroad. South Korea and China utilized this effectively but
some amassed too much debt.
Cultural Causes
Trade spreads ideas and languages far and wide via entertainment, social
media etc. But some nations try to curb unwelcome outside cultural
influence threatening their identity, like Canada reserving radio slots for
domestic artists. France fiercely protects its language from "Franglais". On
the downside, less selection is open to consumers with limits in place.
GOVERNMENT TOOLS TO BOOST TRADE
Trade is the exchange of goods and services between countries. While free
trade allows imports and exports without barriers, governments also
practice managed trade by influencing trade flows. They intervene if other
nations restrict imports or if large trade deficits exist.
Governments have several tools at their disposal to promote trade. The
most common instruments are subsidies, export assistance, foreign trade
zones, and special government agencies.
Subsidies for Domestic Producers
Subsidies refer to financial aid given to local companies in forms like cash
payments, loans at low interest rates, tax breaks, price supports etc. All
subsidies aim to help domestic firms compete against international rivals
in home and export markets. However, subsidies can encourage
inefficiency and complacency if costs are artificially lowered. They may
also harm consumers if paid through taxes and harm the environment if
overuse of resources occurs.
Many developed nations subsidize farmers to ensure food security but this
damages farmers in developing countries trying to sell in world markets.
While subsidies provide temporary relief, their long term benefits are
debatable.
Export Assistance for Trade Growth
Governments assist exporters through low interest loans unavailable
elsewhere, loan guarantees if companies default, and trade promotion
agencies. Well known examples are the US Export-Import bank and
International Development Finance Corporation providing insurance,
financing and credit information services. This support is crucial for small
businesses starting in exports, like BioSafe Technologies expanding in
Europe with a line of credit.
Foreign Trade Zones to Boost Employment
Foreign trade zones or FTZs are designated areas allowing imports and
exports with lower duties and procedures to promote employment.
Companies set up import/assembly facilities in FTZs to avoid further
duties on finished goods sold locally. China and US have many large FTZs
while Mexico's maquiladora program along the US border employs
hundreds of thousands through parts import, assembly and re-export.
Specialized Agencies for Trade Guidance
As trade regulations differ globally, most nations have agencies promoting
exports and educating exporters. They organize visits and open overseas
offices introducing local firms. Examples are Chile's ProChile and Japan's
JETRO assisting small businesses navigate protocols and find partners in
target markets.
GLOBAL TRADING SYSTEM AND THE WTO
The Bumpy Road of Global Trade Regulation
Early Attempts at Cooperation: GATT
Formed in 1947 to promote free trade after protectionist policies
worsened Great Depression.
Successful early on - reduced tariffs from 40% to 5%, grew trade
volume 20X by 1988.
But nationalism increased nontariff barriers in 1980s, services not
covered. Needed updating.
Uruguay Round Negotiations
1986-1994 talks with 123 countries, most complex negotiations
ever.
Achievements:
Agreement on services trade. Defined 4 modes of services
trading.
TRIPS agreement to standardize intellectual property rules.
Reduced agricultural tariffs and subsidies.
Created the WTO to regulate global trade.
World Trade Organization
164 members. Goals are open trade, reduced barriers, dispute
settlement.
Principle of nondiscrimination - equal treatment for all members.
Fast, automatic dispute rulings to align policies - unlike slow GATT
system often ignored.
Criticized recently - stalled talks, unchanged from 1990s, national
security used to restrict trade.
Dumping - exporting below cost is punished by duties if proven
harmful.
Environment not central but supports climate accords, sustainable
development, disclosure.
Overall credited through early 2000s with encouraging fairer trade
but faces uncertainty.
