Government Intervention and Regional Economic Integration

Government Intervention and Regional Economic Integration

Government intervention involves where a countries administration intervenes in investments and trade to attain social, political, or economic goals and objectives. The government’s imposition of investment and trade barriers includes those who benefit interested groups, including domestic industries, firms, as well as labor unions. The intervention of a government usually changes the competitive landscape by helping or hindering the ability of firms to engage in global competition. Basically, intervention by the government is an essential dimension of a country’s risk.

Globalization has recently become the trend in the modern business setting, where countries have been involved in economic interdependence more than it has ever been before. Regardless of the escalated level of interdependence, there are the world’s leading economies that have been seen to attain some degree of freedom as they work tirelessly to ensure that they gain all benefits and resources from the global trade for their benefits. Generally, there are numerous approaches that governments can use to ensure protectionism is attained. Theses include the use of import quotas, tariff, investment barriers, and nontariff trade barriers (Knight, 2015). The use of the protectionist measures may be backed by a majority of the citizens and government officials of a country, although it may face resistance from trade bodies and unions.

The role of the US government intervention

Government intervention includes nationwide economic policies that serve by limiting free trade. Normally, government invention is aimed at raising revenue or shield the domestic firms and industries from intensive foreign competition. The United States administration applies multiple approaches that intend to protect the country’s economy as well as the domestic firms from the increased substandard and cheap imports. To attain this, it makes use of tariffs, especially of the services and goods that originate from a particular country they would want to exercise the protectionist policy (Knight, 2015). For instance, the increased economic wars between the US and China resulted in sterner tariffs being imposed on Chinese products such as fish. Normally, the imposition of a tariff may be temporary, as it may change based on the retaliation from the target country. The use of measures such as quotas and tariffs on imported goods is also aimed at ensuring fair competition between the local goods and imported goods (Kooi, Heah & Ng, 2018).

The US uses different protectionist measures in distinct countries. These include the use of voluntary export restraints that are applied to limit particular products in the country. It can also employ Valorem tariffs on goods, especially those that come from Latin American nations and Mexico (Knight, 2015). The US government also ensures that the issuance of an import license is curtailed for those who would wish to import from other countries. The move is normally to compel the citizens of the country to buy and consume local goods and services. To ensure the local producers and manufacturers engage in their production activities, the US government has introduced subsidies such as tax breaks and interest-free tax to ensure the firms compete with foreign goods.

The United States administration also plays a significant role as it sets content requirements where all imports are compelled to fulfill particular standards and quality for them to be allowed for consumption in the US boundaries. The stern requirements are used to scare away imports into the US economy and cause unnecessary competition for local goods and services. Besides, the US administration is committed to introducing importation laws that deter foreign countries or any imports into the country from taking place. Generally, where importers find it challenging to carry out the importation of products, they will be scared away from the activities. Hence, the government will have attained the protectionism goal. One of the emerging issues is the dumping of goods into other markets. The US administration considers the issue as serious and has introduced anti-dumping policies and regulations that serve by hindering the purchase of goods, products, or commodities that have a low value attached to them. The next key role that the US administration engages in, especially in the protectionism mechanism, is the controlling of exchange rates by controlling the dollar value against other nations across the world (Knight, 2015).

Viewpoints of government protectionism

There are numerous grounds why governments will impose protectionism measures against other countries. One of the most significant reason is the issue of nationwide security. It is a result of the fears of sovereign threat that governments will put more effort into protecting their territory from severe economic practices from other countries. The United States takes national security into consideration when it comes to trading activities by ensuring that their core production activities are protected from other countries. These include key sectors and production activities such as food producers, high tech operations, as well as defense-related organizations. The US administration is mandated with safeguarding such key sectors of the economy.

The US government also views the growth of the economy through employment levels of US citizens. As a result, it makes use of the protectionism mechanism that helps in shielding the jobs of  Americans and also protecting local industries. Where protectionism does not exist, local industries experience stiff competition from foreign firms and importation practices. This will result in local firms collapsing and also the loss of jobs to the local citizen. The government avoids such occurrence by introducing protectionist laws to protect jobs and local firms.

The United States also considers the use of protectionism as encouraging the consumption of high quality and value commodities by the US citizens. The US is a leading economy in the world and enjoys mass success from restricting imports into the country and witnesses increased exports to other countries across the world. In this way, the country attains protection of the infant industries and prohibits the influx of low value and quality products into the US market.

Nevertheless, there are critics of the efforts and policies adopted by the US government to practice protectionism. The majority of them argue that some of the actions result in conflict and trade wars with other countries. One of the countries is China, which also imposes retaliatory measures such as tariff imposition on US goods and services. There have been escalated competition and trade wars between the US and the Chinese government, which has significantly led to fears of an outbreak of economic wars that impact the entire world (Cheong & Tongzon, 2018).

The use of protectionist measures is established as harmful to the country using such measures. First, critics maintain that it prohibits innovativeness, transfer of knowledge as well as lack of technological advancement. Besides, countries may also suffer from the loss of their expertise to other nations such as scientists, engineers, doctors, as well as exceptional designers due to the outsourcing approach.

Impacts of international trade protectionism

Trade protectionism has several effects across the world. The call by the World Trade Organization to exercise free trade has been impacted by the introduction of the global trade protectionism approach. The use of the various protectionist mechanism impact the free trade by restricting the flow of services and goods, and hence the consumers are left with limited choices to make (Pelagidis, 2018). As a result, the impacts of trade protectionism is transferred to the consumers through the increase of prices for scarce commodities. Protectionism leads to reduced competition, and hence low-quality goods are produced. There is also the absence of innovation in production and inflation issues in developing nations. Trade war becomes a significant impact of trade protectionism for the leading economies in the world. Generally, the use of trade protectionism contributes to severe repercussions to the country practicing the policies.

Conclusion

The modern world has been characterized by globalization, where counties can engage in global business and interactions. The effect of globalization has been felt through trade activities, and countries have become concerned over the importation practices and local industries’ effect. As a result, the government intervenes on behalf of the local firms and jobs through the use of protectionism measures. The use of protectionist policies shields the country from low-quality commodities, the competition of the infant industries, and the loss of jobs of their citizen. Protectionism policies may include, however, bee harmful to a country as it may lead to trade wars, lack of innovation, low-quality goods due to the absence of competition, as well as inflation problem for developing nations. Some countries also suffer from loss of expertise and experienced labor force due to outsourcing practices.

References

Cheong, I., & Tongzon, J. (2018). The economic impact of a rise in US trade protectionism on East Asia. Journal of Korea Trade.

Knight, G. (2015). Government Intervention in International Business. The Wiley Blackwell Encyclopedia of Race, Ethnicity, and Nationalism, 1-2.

Kooi, W. R., Heah, Y. R. & Ng, D. W. H. (2018). Trade protectionism and comparative advantage: an empirical analysis.

Pelagidis, T. (2018). Free trade, protectionism, and the global economy. World Economics, 19(2), 121-128.