Political Reasons for Government Intervention
Global Business Environment
Published on: Mar 4, 2016
Transcripts - Political Reasons for Government Intervention
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POLITICAL REASONS FOR GOVERNMENT
BY: AANCHAL SAXENA
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University of Bradford
Government intervention can be defined as an authoritarian action, which is regulatory in nature,
with the purpose of affecting or interfering with the decisions made by certain individuals,
groups or business organizations on social and economic matters. As of today, there is no
country in the world where its government of the land does not interfere, in some form or the
other in its economic or social activities. State Intervention in business is as old as the business
itself. State Intervention became a historical necessity chiefly since the era of industrial
revolution of late 18th and early 19th Century. Prosperity and poverty, suffering and comfort,
and helplessness and exploitation became so collocated that the need for state intervention began
to be felt. In today's world, political strength can be regarded as one of the key factors for trade
between two nations. Generally, the government intervenes in trade in order to provide support
to a range of activities such as domestic or exports and also during tough economic situations
(insidebusiness360, 2014). There are various reasons for which government intervenes in trade.
These are classified as political, cultural and economic. In the following essay, the various
arguments for government intervention for political reasons will be discussed supported with
examples. Furthermore, it will also discuss whether these interventions are justifiable or not and
what implications these policies can have on the managers of an international company.
Government interventions in trade can be usually carried out by creating various rules and
regulations such as administrative policies, subsidies, tariffs, subsidies, important quotas,
currency controls etc. One of the main arguments put forward for government intervention by
various analysts is the protection of jobs and industries. It refers to saving jobs and boosting local
industries by imposing subsidies or tariffs. For example, the Omani government has decided to
cut down 100,000 expat jobs in order to provide for the nationals under its 'Omanisation'
Scheme. This move was adopted due to the growing unemployment rate with the Omani youth
and the increasing number of expats in the private sector jobs with the ratio being 1:6 between
the expats and the nationals in private sector jobs.(Oman, T. 2014).Another example could be the
U.S, where following a push from the U.S Senator, Sherrod brown, the International Trade
Commission (ITC) had voted on 16th November 2014, to extend the anti-dumping duties on
nitrogen fertilizers imported from Ukraine and Russia. This move was done in order to prevent
nearly 240 jobs mainly agriculture related in Lima and in order to safeguard PCS Nitrogen
Ohio,L.P firm which is one of the few remaining American producers of solid urea and operates
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a plant in Lima. Had these duties been revoked, it would have led to renewed flood of unfairly
traded Ukrainian and Russian urea imports. (Brown.senate.gov, 2011).
Another argument put forward for government intervention is the retaliation argument. This
refers to how government of certain nations use intimidations or threats as a bargaining tool in
trade policies to further open foreign markets or force other nations to play by their game. For
example, in the year 2013, the Ukraine government had to suspend its plans of signing far-
reaching political trade agreements with the EU. This was due to the threat of crippling trade
sanctions by Russia. Had the deal been signed, it would have been a serious threat and an
economic version of the West's efforts to building a military power by the eastward expansion of
the North Atlantic Treaty Organization (NATO). Similar pressure by Russia, forced Armenia to
abandon its talks with the EU as well. (HERSZENHORN, D. (2014).An example of retaliation
can be understood with the help using two major trading giants the America and China. The two
have been known for imposing tariffs on each other since years. In the year 2011, Chinese
government retaliated against the American government imposing additional duties on all cars
imported from the US. This move was in response to the dumping and subsidizing policy of the
American Car makers which had substantially affected the Chinese car makers. (Wearden, G.
Governments are also known to intervene in trade for protecting its consumers. This is called the
protecting consumers argument. For example, the Federal Consumer Protection Service for
Russia, issued a statement where it suspended a range beef imports from Germany as well as 10
other EU countries over the fear of anthrax, a bacterial disease, which when transmitted can be
harmful for the human body.(The Moscow Times, 2014) Also, The Indian government decided to
ban the Taxi App 'Uber' when one of its driver's was held responsible on Rape charges against a
passenger in the country's capital. The government has also decided to ban other such taxi apps
from operating within the country. Uber was also banned from Thailand this week and the
Spanish judge had ordered for a temporary halt to the company's operations in the country. It
also faces lawsuit in its home country, where the Californian courts sued the company as they
were falsely claiming to have screened out their driver who had offences on their names.
(Sugden, J., Malhotra, A. and MacMillan, D. 2014).
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National Security argument, is another reason why government of the land might intervene in
trade. Some industries in the country are protected due to national security reasons. Industries
like defense, aerospace etc. are often controlled by the government as it is believed that the
government should always be self-reliant. Humanitarian reasons can also be argued as a point
due to which the governments intervene. Since the establishment of Israel, The Arab has league
boycotted any trade with the country. Companies that were having a branch, agency or factory in
Israel are put on the blacklist. This was another reason due to which for many years, Coca Cola
was banned in the Arab states and only Pepsi was available as Coca Cola Company was known
to provide aid to the Israel.(The Independent, 1993).
Governments sometimes also intervene in order to gain influence over other nations. The
dominant nations through trade relations often take advantage of smaller nations. For years the
US has enjoyed strong trading relations with the Latin American countries and has a strong hold
over them through agreements like NAFTA. These small countries rely heavily on America for
their business and since America is a super power it has tried to take advantage of these nations.
A small disruption in trade can be a heavy cost to most of these nations.(Daily Reckoning, 2009).
Since Commerce being an important tool to achieve foreign policy goals, preferential treatments
are sometimes awarded to certain countries with which strong relations are built. The US shares
a close tie with Kuwait due to common strategic interests in mainly defense,trade, technology
and energy. When Iraq invaded Kuwait in the year 1990, the American military backed the
Kuwaiti Army, also America imposed sanctions on Iraq as a consequence of the
Cases cited above reflect only the positive reasons and outcomes of the government
interventions. Just like a coin, government interventions too have a double side to it. Researchers
have often questioned whether how justifiable certain government actions can be. For example,
the Malaysian government imposes heavy tax duties as high as 30% on cars imported from
America Europe and Japan. This is done in order to protect the home car manufacturer "Proton",
which without government help and subsidies would collapse in the international market. Thus,
the Malaysian nationals pay RM140, 000 for 2013 Toyota Prius which is only for RM80, 000 in
US or Japan. Thus the protecting industry argument clashes with protecting consumer arguments
as the government is forcing a poor home-made brand on its citizens and depriving them off
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better quality imported cars. (Livelifedrive.com, 2014). Signing of the NAFTA agreement was
done to have a free trade relation between all the signing countries and it was expected that it
would boost jobs for the Americans. However, according to a report by Economist Robert Scott
of the Economic Policy Institute, around 682,900 jobs in the US have been lost as a result of the
treaty.(The Huffington Post, 2014). American government had denied China Most Favored
Nation (MFN) due to humanitarian reasons, however the US government led invasion in Iraq
was on variety of grounds except for humanitarian. (Coalition, S. 2014).In 2009, China
unexpectedly took a step to impose tariff on American auto motives imported and chicken meat
as a retaliation in response to Obama levying tariffs on tires from America. This proves that
retaliation technique adopted does not always work and sometimes leads to conflicts where the
sufferers are the businessmen and the consumers. (Nytimes.com, 2014)
Hence a Manager of a global firm needs to understand that trade barriers hold severe importance
and need to be discussed upon before formulating a strategy. A sound knowledge of the global
environment be it political or economical is crucial for continued success of the business.
In conclusion, government interventions in trade are done one various arguments. Namely,
protection of jobs and industries, consumers, retaliation and gaining influence over other nations.
And lastly for the foreign policies and humanitarian reasons. It can be seen from the situations
discussed above, that government interventions can be good or bad. They differ from situation to
situation. However, before an intervention is carried out, it would be better if the government sits
and ponders over all the possible pros and cons of adopting a certain technique as this would
help prevent in the adopted policies having a negative result.
(Word count: 1564 words)
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1. Brown.senate.gov, (2011). Following Brown Push to Defend Nearly 240 Lima Jobs,
International Trade Commission Votes to Protect Key Agricultural Industry
Manufacturers | Press Releases | United States Senator Sherrod Brown. [Online]
Available at: http://www.brown.senate.gov/newsroom/press/release/following-brown-
key-agricultural-industry-manufacturers. [Accessed 2 Dec. 2014].
2. Coalition, S. (2014). US intervention is not humanitarian and will not protect the people
of Iraq - Stop the War Coalition. [Online] Stopwar.org.uk. Available at:
people-of-iraq [Accessed 1 Dec. 2014].
3. Daily Reckoning, (2009). The Decline of the USâ€™ Imperial Influence in Latin
America. [Online] Available at: http://dailyreckoning.com/the-decline-of-the-
us%E2%80%99-imperial-influence-in-latin-america [Accessed 1 Dec. 2014].
4. HERSZENHORN, D. (2014). Facing Russian Threat, Ukraine Halts Plans for Deals with
E.U.[online] Nytimes.com. Available at:
raising-concerns-over-eu-talks.html?pagewanted=all [Accessed 1 Dec. 2014].
5. Kuna.net.kw, (2014). KUNA: US, Kuwait share "strong" friendship that reflects
"common strategic interests" - Politics - 07/09/2013. [Online] Available at:
http://www.kuna.net.kw/ArticleDetails.aspx?id=2332225&language=en [Accessed 1
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6. Livelifedrive.com, (2014). [Online] Available at:
high-car-prices-in-malaysia---part-1 [Accessed 1 Dec. 2014].
7. Nytimes.com, (2014). China Moves to Retaliate Against U.S. Tire Tariff -
NYTimes.com. [Online] Available at:
http://www.nytimes.com/2009/09/14/business/global/14trade.html [Accessed 2 Dec.
8. Oman, T. (2014). Minister of Manpower Sheikh Abdullah bin Nasser Al Bakri said the
ministry plans to reduce the number of expatriates working in the private sector from
current 39% to 33%. [Online] Timesofoman.com. Available at:
Omanisation [Accessed 5 Dec. 2014].
9. Sugden, J., Malhotra, A. and MacMillan, D. (2014). Uber under Attack around the Globe.
[Online] WSJ. Available at: http://www.wsj.com/articles/india-advises-all-states-to-ban-
uber-and-other-car-hailing-services-1418119647 [Accessed 10 Dec. 2014].
10. The Huffington Post, (2014). NAFTA Cost U.S. 700k Jobs, Report Says. [Online]
Available at: http://www.huffingtonpost.com/2011/05/12/nafta-job-loss-trade-deficit-
epi_n_859983.html [Accessed 9 Dec. 2014].
11. The Independent, (1993). Arab states still clinging to Israel boycott: The 45-year-old
trade embargo of the 'Zionist state' persists despite the recent peace accord, writes
Charles Richards. [Online] Available at: http://www.independent.co.uk/news/world/arab-
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12 Dec. 2014].
12. The Moscow Times, (2014). Russia Bans Imports of European Beef Products Over
Anthrax Fears | Business. [Online] Available at:
products-over-anthrax-fears/510653.html [Accessed 1 Dec. 2014].
13. Wearden, G. (2011). China imposes tariff on US car imports. [Online] the Guardian.
Available at: http://www.theguardian.com/business/2011/dec/15/china-taxes-us-car-
imports [Accessed 5 Dec. 2014].