Question

What reasons have been given for the appropriateness of government intervention in trade? What are the benefits and costs of those interventions?

Answer 1

The reasons given for the appropriateness of government intervention in international trade are:

• To promote the growth of the domestic industries and markets and to protect the citizens of their country. The new industries established in their country lack the technology and expertise to compete with the foreign institutions. So, in order to let these industries flourish and promote their uninhibited growth as intense competition from the foreign industries hinder their full potential to grow.
• government intervention is required to protect the economy of their country. If the foreign industries enter our nation, then it will become impossible for the domestic industries to survive within the environment of intense competition. Access to low cost products, will make the people of our country lose their jobs and negatively affecting our economy.

Benefits and costs:

The costs are :

• The government imposes tariffs on the foreign goods which makes these goods expensive in comparison to the domestically produced goods. This leads to increase in consumer prices and making the domestic goods less efficient as the competition is eliminated.
• The government gives subsidies to these industries in the form of cash, tax breaks. This way the government supports inefficient industries as well and promotes higher priced products and the competition is eliminated which would keep the prices low.

Benefits:

• It protects the nation, its industries and it's people.
• It helps promote growth in the industries which are newly established(Infant Industries) which otherwise would have succumbed to pressure from foreign industries.
• government helps the firm gain economies of scale .