3. National security is another reason for government intervention. Trade restrictions are often needed to protect industries that produce output vital to the security and defence of the nation. 4. In most countries some industries are seen as central to country’s culture and identity. Offensive rationale for government intervention falls into two categories: 1. Government intervention sometimes aims to protect high-tech and other high- value-adding industries that accelerate the growth of nation’s economy. In contrast to low-value-adding industries (agriculture, textile manufacturing, etc.) high-value-adding industries (information technology, pharmaceuticals, etc.) create better jobs and generate higher tax revenues. 2. Governments may impose trade barriers to protect employees in certain industries. As a result of import restriction total national output grows leading to more jobs in protected industries. It was proved that this effect is the strongest in import-intensive industries that employ much labour. 2
Instruments of Government Intervention Instruments of government intervention are the principal instruments of trade intervention. The traditional forms of protectionism are tariffs and nontariff trade barriers. Tariffs There are import and export tariffs. Import tariffs are taxes on the products imported in the country. These can be: - ad valorem - assessed as a percentage of the value of the imported product; - specific tariffs - a fixed amount per unit of the imported product; - revenue tariffs - intended to raise money for government; - protective tariffs - protect domestic industries from foreign competition; - prohibitive tariff - tariff so high, no one can import any of the items; Tariffs increase costs to the importers, exporters, and usually the buyer of the product. This discourages imports of products. The benefit is that it increases government revenues. A less common type of tariff is export tariff . It is a tax on a good that's being exported from a country. Nontariff Trade Barriers Nontariff trade barriers are government policies or measures that restrict trade without imposing a direct tax or duty. These are: quotas, import licences, local content requirements, government regulations, and administrative procedures . The use of nontariff trade barriers has substantially grown in recent decades. Governments prefer them because they are easier to hide from WTO and other trade monitoring organizations. Quotas restrict the physical volume or value of products that firms can import into a country. Governments can impose voluntary quotas, under which firms agree to limit exports for certain products. These are also known as voluntary export restraints.
- Fall '13
- International Trade