{"id":164504,"date":"2025-03-01T09:30:16","date_gmt":"2025-03-01T09:30:16","guid":{"rendered":"http:\/\/chrisw92.sg-host.com\/?p=164504"},"modified":"2025-04-07T11:28:35","modified_gmt":"2025-04-07T10:28:35","slug":"governments-intervene-international-trade","status":"publish","type":"post","link":"https:\/\/realbusiness.co.uk\/governments-intervene-international-trade","title":{"rendered":"Government Intervention In Markets &#038; Why It Is Sometimes Necessary"},"content":{"rendered":"<div class='booster-block booster-read-block'><\/div><p><strong>Trade across the free market is one of the fundamental ways in which the economic system of many countries can raise revenue and maintain our modern lifestyle, as well as boost business opportunities and international relations. That being said, the free market is often subject to many government-imposed limits &#8211; such as those <a href=\"https:\/\/realbusiness.co.uk\/trump-tariffs-might-impact-uk-business\">imposed in April 2025 by the Trump administration<\/a> &#8211; which, at first sight, limit the economic system even in the face of possible market failures. Why is this?<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">This article will explore why government intervention in the local economy and international trade is sometimes considered necessary and explore some of the ways they do so and what the potential positives and risks are of an interventionist approach.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_74 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-684fdd0245f79\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-684fdd0245f79\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/realbusiness.co.uk\/governments-intervene-international-trade\/#What_Are_The_Most_Common_Forms_Of_Government_Intervention_In_International_Trade\" >What Are The Most Common Forms Of Government Intervention In International Trade?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/realbusiness.co.uk\/governments-intervene-international-trade\/#What_Are_The_Advantages_And_Disadvantages_Of_These_Forms_Of_Government_Intervention\" >What Are The Advantages And Disadvantages Of These Forms Of Government Intervention?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/realbusiness.co.uk\/governments-intervene-international-trade\/#Economic_Price_Controls_And_Other_Methods\" >Economic Price Controls And Other Methods<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/realbusiness.co.uk\/governments-intervene-international-trade\/#Government_Intervention_Versus_The_Free_Market\" >Government Intervention Versus The Free Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/realbusiness.co.uk\/governments-intervene-international-trade\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n\n<h2><span class=\"ez-toc-section\" id=\"What_Are_The_Most_Common_Forms_Of_Government_Intervention_In_International_Trade\"><\/span><b>What Are The Most Common Forms Of Government Intervention In International Trade?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The following is a rundown of the different forms of regulatory action by the government in international trade.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Tariffs &#8211; <\/b><span style=\"font-weight: 400;\">Tariffs are taxation or duties on imported goods to protect the domestic market by raising the prices of imported so that they are more expensive and less appealing to buyers than domestically produced goods. This can have the impact of growing the domestic economy (as the expense of international competitors) as well as increasing government revenue.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Subsidies &#8211; <\/b><span style=\"font-weight: 400;\">Subsidies are a monetary benefit that comes in the form of cash grants, tax breaks, low-interest loans, state provisions etc. from the government to domestic producers. This increases competition potential in international markets, encouraging industry and creating jobs. It can also be done when correcting market failures.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Quotas &#8211; <\/b><span style=\"font-weight: 400;\">These are government-imposed limits on how much of an item can come into the UK. Once again, this is mainly done to protect domestic industry, sometimes at the cost of consumers, who may have to deal with lower supply, which often leads to high prices.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Bans\/Restrictions &#8211; <\/b><span style=\"font-weight: 400;\">A more obvious form of intervention is the government-imposed limits, or outright ban, on the import\/export of certain goods and their level of quality. This is done to protect consumers and national security. Refer to Gov.u<\/span><span style=\"font-weight: 400;\">k&#8217;s<\/span> <a href=\"https:\/\/gov.uk\/bringing-goods-into-uk-personal-use\/banned-and-restricted-goods\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">banned and restricted goods list<\/span><\/a><span style=\"font-weight: 400;\"> for further information.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Export Controls &#8211; <\/b><span style=\"font-weight: 400;\">For reasons of security or compliance with foreign policy, governments may restrict the export of goods to other nations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Exchange Rate Manipulation &#8211; <\/b><span style=\"font-weight: 400;\">Governments may impose a form of price control by changing the value of their currency. Usually, they do this by buying large amounts of their own, or foreign, currency, shifting its market value. That being said, this can have unintended consequences as it may be viewed negatively by both domestic markets and foreign governments.<\/span><\/li>\n<\/ul>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"size-full wp-image-191696 aligncenter lazyload\" src=\"data:image\/gif;base64,R0lGODlhAQABAIAAAAAAAP\/\/\/yH5BAEAAAAALAAAAAABAAEAAAIBRAA7\" data-src=\"https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-scaled.jpg\" alt=\"Intervention Cash Grant\" width=\"1200\" height=\"795\" \/><noscript><img decoding=\"async\" class=\"size-full wp-image-191696 aligncenter lazyload\" src=\"https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-scaled.jpg\" alt=\"Intervention Cash Grant\" width=\"1200\" height=\"795\" srcset=\"https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-scaled.jpg 1200w, https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-300x199.jpg 300w, https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-1024x678.jpg 1024w, https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-1536x1017.jpg 1536w, https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_2326694251-1-min-2048x1356.jpg 2048w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/noscript><\/p>\n<h3><span class=\"ez-toc-section\" id=\"What_Are_The_Advantages_And_Disadvantages_Of_These_Forms_Of_Government_Intervention\"><\/span><b>What Are The Advantages And Disadvantages Of These Forms Of Government Intervention?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The advantages are as follows:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Correction Of Market Failures &#8211; <\/b><span style=\"font-weight: 400;\">When the free market fails to allocate resources with efficiency, market failure can occur. One main reason is negative externalities:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Negative Externality &#8211; <\/b><span style=\"font-weight: 400;\">A negative externality refers to the side effects products may have on the country. For example, a new drug that causes side effects. If it&#8217;s not worth banning, they can raise the minimum price of the drug to dissuade consumers.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Protecting Domestic Industry And Job Security &#8211; <\/b><span style=\"font-weight: 400;\">If a country has a high supply of a certain good, that will likely end up shifting the market price of the good. This can crash domestic businesses. For example &#8211; domestic Japanese woodcutters lost jobs due to cheap wood being imported elsewhere during the country&#8217;s reconstruction post-WW2.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>New Infant Industry &#8211; <\/b><span style=\"font-weight: 400;\">If there is high potential in some new local industries, employing a form of price mechanism to protect the infant industries until they develop into a force on the international stage would be beneficial for the company and overall domestic economy.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Trade Strategy &#8211; <\/b><span style=\"font-weight: 400;\">By affecting both minimum prices and maximum prices of certain goods, a country can leverage a competitive advantage in certain industries or negotiations with other countries.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Promoting Change &#8211; <\/b><span style=\"font-weight: 400;\">Contrary to negative externalities, positive externalities refer to goods with great side effects, such as renewable energy products. By using government intervention to affect the costs versus other products, they can reap the benefits of more environmentally-friendly products being used by a nation.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The disadvantages of government intervention are as follows:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Market Distortion &#8211; <\/b><span style=\"font-weight: 400;\">Poor use of government intervention on the minimum and maximum price of goods can create fluctuations in the market, resulting in higher prices, reduced innovation etc.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Foreign Dispute &#8211; <\/b><span style=\"font-weight: 400;\">Countries may be prompted to respond with countermeasures, such as high tariffs or even barring certain products, potentially disrupting global supply chains and hindering cooperation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Rent Seeking &#8211; <\/b><span style=\"font-weight: 400;\">When intervention goes wrong, it can prompt special interest groups to lobby for policies that benefit them rather than the economy as a whole, leading to corruption.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Economic_Price_Controls_And_Other_Methods\"><\/span><b>Economic Price Controls And Other Methods<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Intervention in markets sometimes goes beyond trade regulations to address domestic market failures and promote the welfare of the public via price controls &#8211; such as imposing higher or lower price ceilings and price floors. This can ensure the affordability of essential goods and services, protecting consumers from high prices during times when it&#8217;s impossible to increase supply or meet high demand.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Nonetheless, this can backfire. For example, adjusting the price ceiling can lead to shortages and black markets, whereas price floors can lead to oversupply, waste of resources and increased costs.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Beyond messing with the price mechanism, there are other ways in which the government can help the public.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Taxes And Subsidies &#8211; <\/b><span style=\"font-weight: 400;\">Taxes on goods with negative externalities, such as demerit goods, can increase external costs. This can discourage consumption and production. Merit goods, however, such as healthcare, are instead encouraged to <a href=\"https:\/\/realbusiness.co.uk\/overcome-fear-of-failure-in-business\">overcome market failure<\/a> and increase the positive externalities of the trade.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Public Provision &#8211; <\/b><span style=\"font-weight: 400;\">Providing public goods, public transport, and street lighting out of the government&#8217;s pocket in the face of correct market failures within the private sector can offset bad decisions or unavoidable consequences in the international market.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Information Provision &#8211;<\/b><span style=\"font-weight: 400;\"> The information governments have on the global market is typically better than anything an A-level economics master can come up with, as they must know for the continued prosperity of the domestic market, enabling businesses and consumers to make informed decisions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Regulation &#8211;<\/b><span style=\"font-weight: 400;\"> Regulations can be put in place to address a market failure caused by inadequate competition, externalities or information asymmetry in the interest of public policy, such as mandating accurate food packaging.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Government_Intervention_Versus_The_Free_Market\"><\/span><b>Government Intervention Versus The Free Market<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The domestic health of the markets is tied heavily to the economic well-being of the public. Whilst it may seem more prudent to dispense with changing the minimum price, or maximum price, of goods and services whilst instead pushing for cheaper goods on the global market, it&#8217;s risky.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Global trade is a tool used to benefit a nation and its people, but relying on it means being powerless in the face of geopolitical issues you have no influence over. Furthermore, having completely open trade with no regulations means risking bad actors entering the market. For example &#8211; regulations on food have been put into existence to protect consumers. It&#8217;s entirely due to government intervention that poisonous materials are kept out of food and drink.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So where&#8217;s the line between freedom and protection? The line is a difficult one to tread and some government interventions can have an adverse effect and potentially lead to many negatives including trade wars and domestic of global economic crashes.<\/span><\/p>\n<p>The tariffs imposed imposed by the Trump administration in April 2025 caused an initial shockwave that impacted on investment markets, but is not yet clear whether this marks a permanent return to protectionism by the United States that is here to stay or more shortlived.<\/p>\n<p>&nbsp;<\/p>\n<p><img decoding=\"async\" class=\"size-full wp-image-191695 aligncenter lazyload\" src=\"data:image\/gif;base64,R0lGODlhAQABAIAAAAAAAP\/\/\/yH5BAEAAAAALAAAAAABAAEAAAIBRAA7\" data-src=\"https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_1052256230.jpg\" alt=\"International Trade\" width=\"1000\" height=\"703\" \/><noscript><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-191695 aligncenter lazyload\" src=\"https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_1052256230.jpg\" alt=\"International Trade\" width=\"1000\" height=\"703\" srcset=\"https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_1052256230.jpg 1000w, https:\/\/realbusiness.co.uk\/wp-content\/uploads\/0202\/05\/shutterstock_1052256230-300x211.jpg 300w\" sizes=\"(max-width: 1000px) 100vw, 1000px\" \/><\/noscript><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><b>Conclusion<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Overall, some degree of government intervention is necessary. Without it, both market failure domestically and internationally becomes a high possibility. It should be balanced as all things should &#8211; with reason. Limited government intervention is great opportunity for some, but can bad for others. Regulation does provide some element of protection, and ensures other industries less developed have a chance to thrive.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Trade across the free market is one of the fundamental ways in which the economic system of many countries can raise revenue and maintain our modern lifestyle, as well as boost business opportunities and international relations. That being said, the free market is often subject to many government-imposed limits &#8211; such as those imposed in [&hellip;]<\/p>\n","protected":false},"author":26234,"featured_media":164505,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[11935],"tags":[6319,5998,5641,11929],"class_list":["post-164504","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-international-trade-2","tag-barriers-to-exports","tag-goods-exporting","tag-importing","tag-jul-p"],"views":22360,"_links":{"self":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/posts\/164504","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/users\/26234"}],"replies":[{"embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/comments?post=164504"}],"version-history":[{"count":0,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/posts\/164504\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/media\/164505"}],"wp:attachment":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/media?parent=164504"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/categories?post=164504"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/tags?post=164504"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}