Free trade among different countries offers many benefits in terms of business opportunities for the individual, building international relations, as well as economic growth for entire economies. So why would governments intervene by creating barriers, tariffs, and other obstructions to international trade? This is a topic that has many nuances and differs greatly from country to country. Still, there are many reasons (some unexpected) as to why governments intervene when it comes to international trade.
In this article, we aim to give you a greater understanding of why governments intervene in international trade and some of the ways in which they do so.
What are the most common forms of government intervention in international trade?
Import tariffs are probably the most common way in which governments intervene in international trade. An import tariff is a very specific tax that is placed on certain imported goods, thus causing these imported goods to cost more and disrupting the balance of international trade.
Apart from tariffs, most governments also implement bans and restrictions on certain products. In the UK, bans and tariffs are quite minimal when compared to stricter companies. But it should be noted that you cannot import weapons, illicit drugs, rough diamonds and a few other products listed on the banned and restricted goods list.
What are some of the reasons for governments intervening in international trade?
Some of the reasons that governments around the world intervene in international trade include:
Protecting infant industries
Tariffs and other forms of government intervention are often used to protect newly founded, local businesses from an already established international competition that may be selling similar products for lower prices.
These tariffs encourage customers to support local businesses and give new businesses the time and opportunity to get their business off the ground. Without tariffs on international goods, many startups in the UK would fail entirely, and unemployment would surely increase.
Whether it’s a time of peace or a time of war, most governments make an effort to protect their own sectors of the economy that provide services critical to national defence and security. A government may impose heavy tariffs in an effort to protect and secure their own domestic production of these products and services. Some obvious examples would include weapons, advanced electronics, aerospace, and strategic minerals.
National security experts argue that a country should be completely self-reliant when it comes to its defence and security. Still, a smart move would be to stockpile weapons and resources in times of peace when they are cheaper.
No country wants to see its unemployment rates rise as it will raise levels of crime as well as general dissatisfaction. Governments should focus on creating an environment that maintains high levels of employment, as well as new employment opportunities being offered all the time. This keeps the economy healthy and promotes economic growth.
If the domestic economy is struggling to compete with international competitors, a government may impose certain tariffs to direct consumer attention back to local businesses and therefore insulate and protect their own economy from outside competition.
Certain governments may implement tariffs on certain products that they feel are harmful to the environment or do not adhere to specific environmental standards. Imports, in general, may be subject to some sort of environmental tariff because of the environmentally unfriendly nature of importing and exporting goods (petrol, jet fuel, excessive packaging etc.).
There are many cases in which international competitors may use highly aggressive trade tactics such as flooding the market. This may cause domestic traders to be run out of business as international traders will get a foothold in the market share. Aggressive trade practices can happen quite unexpectedly and without warning. Governments need to put barriers in place to protect their economies from this sort of aggressive trade practice.
Within certain countries, a purely emotional or sentimental argument is used for certain trade tariffs and barriers. A good example of this would be in China and Japan. Both countries have a strong cultural connection towards rice and believe that rice grown outside of their home countries is not right for the palates of its citizens. While this may not make logical sense to many, this argument is seen as acceptable to many.
Throughout the world, many other countries use emotional arguments for bans on certain items or services. Canada places limits on international publishing, TV and bookselling, while India does not allow for outside investments in print media. And these are just a few examples.
When you look at the list of banned and restricted import goods of any country, you should notice that most of the items listed are considered dangerous, such as guns, knives, and other weapons. Certain animal products, as well as products, made from endangered animals (such as ivory jewellery etc.), are usually also banned in an effort to prevent consumers from being a part of unwholesome consumption.
There is also the concern of some animal products being diseased, and importing them runs the risk of having an outbreak. This is something that we need to be incredibly careful of in 2021.
Each and every country will have their own list of what medical drugs require a doctor’s prescription and which can be bought over the counter. These lists will differ from country to country, based on what health professionals deem safe. In an effort to prevent overdosing and incorrect consumption of medical drugs (especially prescription drugs), bans and tariffs are often placed on medication, especially for individual orders and use.
Ensure that you are compliant
When it comes to import and export, you definitely don’t want to dodge the system. In the times of the COVID-19 pandemic, the government is more strict than ever when it comes to movement of goods and also people. Don’t try to get around the tariffs or import/export illegal goods. The repercussions could affect your entire life.