2. Describe the Political, Economic, and Cultural Motivations Behind Governmental Influence in Trade:
• Political: a politician’s very survival depends on pleasing voters, therefore, they may intervene to: o Protect Jobs: nothing will oust a government faster than high rates of unemployment o Preserve National Security: industries considered essential to national security often receive government-sponsored protection o Respond to “Unfair” Trade: if one government thinks another nation is not “playing fair”, it will often threaten to play unfairly unless certain concessions are agreed o Gain Influence: government of the world’s largest nations may become involved in trade gain influence over smaller nations
• Economic Motives: for the protection of young industries from competition and the promotion of a strategic trade policy. o To Protect Infant Industries: emerging industries need protection from international competition during their development phase until they become sufficiently competitive internationally. Which are worth protecting, protection from competition can cause domestic companies to become complacent toward innovation, protection can do more economic harm than good due to consumers paying more for products, and small companies have trouble obtaining funding and therefore need financial support from their government o To Pursue Strategic Trade Policy: new trade theorists believe government intervention can help companies take advantage of economies of scale and be the first movers in their industries. First-movers advantages result because economies of scale in production limit the number of companies that an industry can sustain. Supporters argue that it results in increased national income. Companies earn a good profit if they obtain first movers advantage. However, lavish government assistance to domestic companies can cause inefficiency and high costs. And government assistance is usually subject to political lobbying by the groups seeking government assistant.
• Cultural Motives: nations often restrict trade in goods and services to
• Economic Motives: for the protection of young industries from competition and the promotion of a strategic trade policy. o To Protect Infant Industries: emerging industries need protection from international competition during their development phase until they become sufficiently competitive internationally. Which are worth protecting, protection from competition can cause domestic companies to become complacent toward innovation, protection can do more economic harm than good due to consumers paying more for products, and small companies have trouble obtaining funding and therefore need financial support from their government o To Pursue Strategic Trade Policy: new trade theorists believe government intervention can help companies take advantage of economies of scale and be the first movers in their industries. First-movers advantages result because economies of scale in production limit the number of companies that an industry can sustain. Supporters argue that it results in increased national income. Companies earn a good profit if they obtain first movers advantage. However, lavish government assistance to domestic companies can cause inefficiency and high costs. And government assistance is usually subject to political lobbying by the groups seeking government assistant.
• Cultural Motives: nations often restrict trade in goods and services to