Why Would a Government Restrict Free Trade?

International trade finance companies were created off the idea of trade, whether it be free or heavily regulated by the government. But why would any government ever want to restrict free trade? Let’s take a deeper dive.

First off, the term “free trade” doesn’t mean the same thing to all interest groups. With free trade being supremely complex, different people with great knowledge of trade still end up forming different viewpoints on what free trade really is. Some of history’s most brilliant and intelligent economists have often not agreed with each other consistently throughout the course of free trade. However, they all seem to agree on something: free trade creates more favorable scenarios for most of the people and entities involved.

Reasons a Government Might Want to Restrict Free Trade

#1 – Protection for small companies

Small businesses are the backbone of the American economy. Hundreds are started each year and make a valuable contribution to society. However, new small businesses often do not have the financial tools to walk alongside giant companies in the same line of business as they are. To help them out, the government protects these smaller companies until they’re strong enough to more competitively co-exist with larger fish. Regarding trade restrictions, a government would implement restrictions that would be favorable to domestic companies in local industries to overcome any financial advantages of the larger company located abroad, thus, helping the small company stay alive longer.

#2Protection of national security

There are many small businesses in the world. Some of them are instrumental in protecting and safeguarding national security. These types of industries are often referred to as defense industries. Since they are helping the government, they are often the beneficiaries of substantial levels of protections as their interests align with the government’s. With national security, technology advancements are important as well. Free trade is not common for technology in the military sector. If a country develops an amazing military technology, that’s not something that they want to trade freely to a country they could potentially become a rival with in the near future.

For example, if the US came up with a groundbreaking military technology, the chances of them freely trading this technology to China would be very low. China has been growing at a very competitive pace in this sector, so it wouldn’t make sense for the US to help them advance further in this direction.

#3 – Protection of local jobs

Whenever governments are asked about free trade, and restrictions that might be a barrier, officials always come back to the fact that they are trying to protect local jobs for local people. If the competition for imported goods were to heighten, that could put local jobs in jeopardy. For example, if a local consumer were to purchase an imported good, rather than buying that same product from a local company, eventually, that local company would have to cut some of its staff because they just aren’t selling enough product.

To add to that, if a local company isn’t selling enough product, they may have to cut the price of the product. If they cut the price of the product, they need to get it made cheaper, in order to make a profit. This would cause them to think about moving their production facilities abroad to get their products made cheaper and still make money.

Final Thoughts

As you can see, there are good and bad reasons to restrict free trade. However, most of all the positive outcomes do point to free trade being desirable.

If you want to learn more about how you can get your company to trade internationally and experience the benefits of doing so, Tradewind can be your one-stop solution for all your international trade finance needs. Combining financing, credit protection, and collections into a single trade finance facility, Tradewind provides streamlined, flexible, and best-in-class services. Consult with Tradewind, reputed as a leading international trade finance company, today for more information on how to expand your business to a global audience.

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