Question

Research and find a company that the government has intervened in its international trade.

1) Provide some background on the situation. What happened? Why did the government get involved?

2) What, if anything, should the company have done differently? Explain your answer.

3) In your opinion, was it necessary for the government to intervene? Why or why not?

4) What was the outcome? Or, if the government is still involved, what do you think the outcome will be?

Answer 1

1)There are many possibility where government need to interfere in the international trade. One of the situation that I would like to share is that, it might happen that the company is facing the problem of increasing cost. Hence, they cannot able to produce at the optimum cost and thus, as the price of the product increases, demand falls for the firm's product in the domestic as well as in the international market too. If the company previously held the position of massive exporter and now for some unforseen circumtances, say the natural resource has suddenly become scare or labour cost has increased due to unavailability of special type of labour that suits the upgraded technology presently incorporated by the company or something else like that which would raise the cost of production, the govrnment will intervene and may provide subsidy so as to help the firm to increase more and thus price will reduce and hence can take part in international trade will smoothly.

2) Yes, afcourse the company also could find the alternative way to solve the solution to the problem. If the company could find any other way to substitute the factor in place of the costly factor, that is, if the company follow the principle of factor substitution then it might be able to decrease the cost of production and hence price of the product will fall and thus export demand will rise.

3) At first, government should see whether the company itself able to manage the situation or not, if not, then only the government should help the company. If the company by own can able to better-up the situation, then it is better for the government not to give subsidy because subsidy should be wisely given where there is no other possibilities to manage the situation. As giving subsidies will create a burden not only on the government but also on the general public. As government give subsidy from the revenue earned, collected via taxes. Hence, more and more subsidy means increase in the tax base which will negatively affect the social welfare of the economy.

4) The outcome will be nothing but as already mention in answer 3 that giving subsidy will affect social welfare of the economy. Hence, one thing that government can do is that, until the company finds the solution to the problem, the government will give subsidy but as soon as the company finds the solution to the problem, governmmet must stop giving export subsidies. As export subsidy is crucial to correct the position of balance of payment, hence it is good whereever and whenever needed. But that sector, where it is necessary should be wisely chosen.