GLOBAL BUSINESS
October 17, 2012
Whose interests should be the paramount concern of government trade policy – the interests of producers (the business and the employees) or of the consumers?
This is a very interesting question. I would hope that the policies that are in place by the government would help not only the producers but in the long run would also help the consumers. The government has a responsibility to ensure that businesses will get that competitive advantage in the global business world. That said, if governments place were to place too much of its interest in businesses, the consumers would definitely suffer immensely. Historically, the United States has made many mistakes where we have protected the producers and companies and have developed many policies to ensure American companies do not fail. The book discusses the steel industry and how government placed an Ad Valorem Tariff on steel. It talked about how we wanted to protect domestic steel producers and how government had too many policies in place. That eventually was counterproductive and it raised the cost of production. This then caused the output to fail miserably and before we know it, we eliminated that tariff within two years. Can we learn from this mistake in the future? Sure we can. But you need the right people for the job. We need to make sure better policy-making decisions are made and that local content requirement is occurring.
The book talks about government intervention. When it does, it seems to me, that it is talking about protecting the inefficient companies, people’s jobs, and industries from unfair foreign competition. While employees may well lose their jobs if there are more well-organized and competent foreign competitors, I would argue that this is the nature of competition, and that the role of government should be to help these employees get jobs where they can be efficiently employed rather than to protect them from reality.
Government intervention can also lead to trade wars. Government intervention usually ends up not working. The European Common Agriculture Policy by European farmers backfired and has cost consumers greatly. One the other side of the spectrum, if government does not set policies to protect the interests of businesses then global firms, companies, may come in and take an unfair advantage, a.k.a. the Steel industry in 2002.
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