How Government Influences Trade and Investment

Image result for TradeTrade is affected by many factors including the government policies. In general, the economic policies may affect both domestic and international trade. But why does the government get involved in the trade? There are many reasons which include creating employment, protecting domestic industry, boosting industrialization, maintaining essential industries, and preserving the culture and national identity.

In the 1920s, only a few people would have known the government as the key player in the trade. Today, few individuals would doubt that statement. The government influence trade in the following ways:

Monetary policy

Of all the weapons that government has, monetary policy is the most powerful. If governments want to go for large and sweeping changes, they alter the monetary landscape.

Interest Rates

Interest rates are another popular government weapon. Dropping interest rates encourage individuals and companies to buy and borrow more.

Subsidies and Tariffs

From the perspective of the taxpayer, subsidies and tariffs are basically the same thing. In subsidy case, the government taxes the public and offer the money to certain industries to make them more profitable. In the tariff case, the government applies taxes to imported products or services to make them expensive, letting the local suppliers charge more for their product or services. Both of these acts have an impact on trade.


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