In response to a variety of physical and social factors (i.e., political/legal, behavioral, economic, and geographic), governments enact measures designed to either enhance or restrict international trade flows. These measures invariably affect the competitive environment in which companies operate, either enhancing or hindering their capacity to compete on an international scale. To an extent, of course, the converse is also true: companies influence government trade policies that affect their activities.
Why Governments Intervene in Trade
All countries seek to influence trade, and each has economic, social, and political objectives: • Conflicting objectives
Import Restrictions to Create Domestic Employment
May lead to retaliation by other countries
Small economies are less likely to retaliate
Also, other economies usually don’t retaliate with small economies that limit imports
May decrease export jobs because of price increases for components and lower incomes abroad
The unemployed can form an effective pressure group for import restrictions. Workers displaced because of imports are often the ones who are least able to find alternative work. In addition, displaced workers often spend their unemployment benefits on living expenses rather than on retraining—in the hopes that they will be recalled to their old jobs.
When they do seek retraining, many workers, especially older ones, lack the educational background necessary to gain required skills. Worse still, some train for jobs that do not materialize.
Although every country has full employment as an economic objective, using trade policy to achieve this is problematic.
Even if successful, the costs may be high and need to be borne by someone.
The Prospect of Retaliation
Trade restrictions designed to support domestic industries typically trigger a drop in production in some foreign...