US Intervention

U.S. Intervention Essay, Research Paper

The United States Government should intervene in international trade to protect the interests of its citizens and increase the overall wealth of the nation. There are political as well as economical arguments which support this idea.

The political arguments for government intervention in international trade are mostly concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers). The three major political arguments for intervention are concerned with the protection of jobs, protecting industries deemed important for national security, and retaliating to unfair foreign competition.

The issue of job protection is a major argument influencing intervention. The security of someone s job is very valuable and a large amount of public concern is sent to government officials. The citizens put an extreme amount of pressure on the government to pass legislation to ensure that their jobs are somewhat stable. Some examples of groups created by government legislation are the Voluntary Export Restraints (VER) (that offered some protection to U.S. automobile, machine tool, and steel industries) and the Common Agricultural Policy (CAP) created the European Union (protected the jobs of European politically powerful farmers). Although CAP restricted imports and guaranteed prices it cost Europe s consumers. This is true of most attempts to protect jobs and industry.

The second of the major argument deals with protecting industries deemed important for national security. Such industries include aerospace, advanced electronics, semiconductors etc Although not that common of an argument any more many still feel that it would be dangerous to rely primarily on foreign producers in these industries. In 1986 this issue created so much concern that it persuaded the Federal Government to contribute 100 million dollars a year to support Sematech-a combination of 14 U.S. semiconductor companies that account for 90% of the industries revenues.

The U.S. Government considers themselves the policing-power of the world and is not to fond of other nations that don t play by their rules. House Speaker Newt Gingrich obviously agreeing when saying We have to lead the world. . . . If we don’t lead the world I think that we have a continuing decay into anarchy, I think we have more and more violence around the planet, and I think it is highly unlikely anybody will replace us in leadership roles in the next 30 years . ((5)) Retaliation always takes place in politics, many argue that the U.S. Government should retaliate when foreign competition is unfair. Most Pro American Business men have adopted the get tough approach and feel that the governments should use threat to intervene in trade policy as a bargaining tool to help open foreign markets. They feel that they should force trading partners to play by the rules. This is indeed what the U.S. did recently, when they threatened to impose punitive tariffs and trade sanctions on Japanese imports, to pry open their market for cellular telephone equipment. This same threat was used to get the Chinese Government to enforce intellectual property laws. As a result this may liberalize trade and create economic gains. Although the pressured country might rise trade barriers of its own and create an economic loss for all involved. ((2))

The economic arguments for government intervention in international trade are concerned with boosting the overall wealth of the nation (to benefit of all, both producers and consumers). The two major economic arguments for intervention concern infant industries, and planning of trade policies.

The infant industry argument is one of the oldest economic arguments, presented by Alexander Hamilton in 1792. According to this argument, new manufacturing industries have potential comparative advantage in manufacturing, but the new manufacturing industries cannot compete with the well-established industries in developed countries. To create economic growth young businessmen fight that the government should temporarily support the new industries until they are strong enough to compete in the market. As an example of the government helping small businesses, the following is an excerpt that appeared in the Farmingdale s Observer from 121898.

Incubator Expected to Spawn

High Tech Jobs

By Andrea Morale

After being fully funded by New York State, development of a software company incubator at

Briarcliffe College in Bethpage is moving forward, Assemblyman Marc Herbst announced last

week.

A $525,000 grant from the New York State Economic Development Corporation went to the Briarcliffe Foundation last month, spurring the start of the furnishing of the site. Located on 23,000 square feet of the college’s main building, which is located in a former Grumman engineering building, it is expected to be fully operational by the first quarter of 1999.

Herbst noted that the move is expected to generate 125 new private-sector jobs at the site within three years of disbursement of the funds. “Encouraging growth in the high technology and software industries is one of the smartest economic moves we can make,” he stated in a release to the press. “New jobs in Nassau County are always welcome news, and these in the software and high-tech fields are ditionally some of the highest paying and most sought after of any employment category.”((4))

Correspondingly, strategic trade policies can supports larger global companies. First it states the government should support promising firms that are active in newly emerging industries. Supporters of this argument point out that the substantial R&D grants the U.S. Government gave Boeing in the 1950 s and 60 probably help tilt the field of competition in the newly emerging market for jet passengers planes in Boeings favor. The second part of the strategic trade policy is to help domestic firms over come the barriers to entry created by foreign firms that have already gotten first-mover advantages. An example of this is when the European Government supported Airbus Industrie, Boeings major competitor. ((1))

American politics and policy needs to take globalization more seriously. President Clinton, perhaps characteristically, tried to have it both ways in his September 22, 1997, speech to the United Nations General Assembly. The forces of global integration are a great tide, inexorably wearing away the established order of things he intoned hastening to add but we must decide what will be left in its wake. ((3))

In conclusion, the political and economic arguments above clearly suggest a rational for government intervention in international trade. Politically the government should intervene to protect the interests of its people, jobs, national security, and its business from unfair competition. Economically the government should intervene to boost the overall wealth of the nation, protect its new firms, and come out on top in trade. Specifically, governments should target technologies that may be important in the future, and use subsidies to support development work aimed at commercializing those technologies. Furthermore, governments should provide export subsidies until domestic firms have established first-mover advantages in the world market. Government support may also be justified if it can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors and emerge as visible competitors in the world market.

BIBLIOGRAPHY

1.A. BRANDER , Rationales for Strategic Trade and Industry Policy in Strategic Trade Policy and the New International Economics (Cambrige Press 1986).

2.P.R. Krugman, Is Free Trade Pass? Journal of Economic Perspectives 1(1987), pp134-44.

3.Alan Tonelson, Globalization: the great American Non-Debate. Current History (November 97 vol. 96, no. 613 pg. 1-6)

4.Andrea Morale, Incubator Expected to Spawn High Tech Jobs Farmingdale Observer (Dec 18)