M Ali Siddiqi discusses the
vagaries of international trade
The current disruption in Conflicts surrounding international trade caused serious depression in the global economy and ruined many a business. International trade has traditionally been recognised as a global activity that has sustained human existence. Along with this great advantage of this activity, it also has caused some very bitter conflicts over the years resulting in widespread disasters. International trade is actually intertwined with international politics and this is primarily the cause of frictions in the acutely essential activity. Nowadays however the mutual interaction of international politics and international economics is widely debated as the political actions of nation-states clearly affect international trade and monetary flows, which in turn affect the environment in which nation-states make political preferences and entrepreneurs, make economic choices. There is a widespread belief that international trade should be kept separate from political considerations and efforts are always made to streamline all issues that frequently are confronted in this matter.
The problematic concerns that are linked with international trade started drawing serious interest when the oil embargoes of the 1970s and the breakdown of the Bretton Woods monetary system took place in quick succession seriously undermining this activity. The rise of OPEC and subsequent almost unending oil crisis changed the dimension of international trade for all times to come. Though it was conceded that states think in terms of geography and population which are the relatively stable factors defining their domain but the case of markets is different as they are defined by exchange and the extent of the forward and backward linkages that derived there from. The borders of markets are acknowledged to be dynamic, transparent and porous although they rarely coincide exactly with the borders of states. When trade within a market involves buyers and sellers in different nation-states, it becomes a vital part of international trade and the object of political scrutiny.
The subject of differentiating international trade and domestic economic activity has also attracted widespread attention and the international exchange of goods, services, or resources with another country raises many political questions of national interest, especially questions concerning the economic and military security of the nation. Apparently the tenets of economic activity may seem quite akin to general economic principles but in international terms they vary in context and practice. In this context it is mentioned that exports are desirable because they increase a country’s monetary reserves and create jobs whereas imports should be avoided because they create dependency, reduce national reserves, and threaten domestic business and labour interests but in international trade parlance their interpretation is different and often creates issues that increase and become complicated in certain cases.
Many circles in the corridors of power in many states while conceding that exports create jobs but their full impact on national security depends upon what is exported to whom and on what terms. An export of technology that has critical military or economic applications tends to weaken national security. Consequently, countries have frequently imposed export controls for both economic and military reasons. Exports of primary products at unfavourable terms of trade with respect to manufactured goods and technology can create fears of economic dependency. Although a trade surplus does increase reserves yet an excessively large bilateral surplus of exports over imports can create political problems such as those that China is currently experiencing with respect to the US. High export penetration is sometimes seen as an aggressive policy by the target country that may react to defend its perceived security interests. A country therefore has an interest in managing the nature of its exports to other countries and in monitoring its trade relationships with other countries.
Countries also pay attention to apprehensions that imports also raise complex security issues as imports may reduce or threaten domestic employment, create the potential for external dependency and reduce domestic monetary reserves but there is more to the trade policy than simple protectionism. Imports may be vital to domestic military and economic security so that national interest requires secure sources of specific imports, not necessarily fewer of them. This is especially true regarding high technology military hardware which may be assembled in one country but use parts and services from a number of other countries. It may be impossible or impractical to avoid some foreign sourcing, so attention shifts from eliminating imports to establishing secure supply chains. Willingness to permit imports from foreign countries can also be used as a foreign policy tool and this problem has remained the focus of attention of many high-importing countries who face the issue of powerful exporting countries that use access to its domestic market as a bargaining chip in negotiations with other countries.
The linkage of imports with political considerations is now an issue that has assumed gigantic proportions. They have resulted in trade embargoes that are employed as an economic tool of foreign policy and a great deal of international trade focused upon the political economy of trade policies. The logic of an embargo is to shut off imports of many vital items and reduce export earning, thereby reducing domestic welfare and providing the state with an incentive to change its policies. The design of the postwar international trade institutions was heavily conditioned both by the free trade views and by the interwar experience of beggar-thy-neighbour trade policies that created an environment of destructive competition and retaliation. But simultaneously many international trade organisations aimed at progressively reducing the barriers to free trade through multilateral negotiations.
The simple fact that all such efforts to ensure free trade have not succeeded in countries from stopping countries from using trade tools to further their own foreign policy goals whenever they could. The current environment is where the political and the economic viewpoints of international trade compete for attention. The advent of free trade areas such as the North American Free Trade Area (NAFTA) and customs unions like the European Union (EU) provides a good example of the political economy of international trade as they frequently use economic tools to achieve political goals. One of the political goals of European economic integration was to strengthen the western Cold War alliance and one of the political goals of NAFTA was to stabilise and strengthen Mexico’s democratic system. The economic benefits of regional free trade are intended to compensate states and their citizens for the loss of sovereignty and other political costs they may bear in forming a regional bloc. Thus regional blocs create both political and economic benefits and, at the same time there are political and economic costs. Politically there is the problem of the democracy deficit.
It is evident that economically there is the problem that regional free trade is not always consistent with global free trade. International trade has always been at the centre of political economy and is likely to remain so in the future. This is not so much because of the economic and political importance of international trade itself as due to the fact that trade is a mirror that reflects each era’s most important state market tensions. In the 1980s and 1990s trade, through regional economic integration, was a tool to consolidate regional interests. With the advent of globalization and the creative economy powered by advanced information technologies, trade has become a controversial issue. TW
Conflicts surrounding international trade
ByM Ali Siddiqi
writer who contributes to leading periodicals
Dated
February 12, 2023
M Ali Siddiqi discusses the
vagaries of international trade
The current disruption in Conflicts surrounding international trade caused serious depression in the global economy and ruined many a business. International trade has traditionally been recognised as a global activity that has sustained human existence. Along with this great advantage of this activity, it also has caused some very bitter conflicts over the years resulting in widespread disasters. International trade is actually intertwined with international politics and this is primarily the cause of frictions in the acutely essential activity. Nowadays however the mutual interaction of international politics and international economics is widely debated as the political actions of nation-states clearly affect international trade and monetary flows, which in turn affect the environment in which nation-states make political preferences and entrepreneurs, make economic choices. There is a widespread belief that international trade should be kept separate from political considerations and efforts are always made to streamline all issues that frequently are confronted in this matter.
The problematic concerns that are linked with international trade started drawing serious interest when the oil embargoes of the 1970s and the breakdown of the Bretton Woods monetary system took place in quick succession seriously undermining this activity. The rise of OPEC and subsequent almost unending oil crisis changed the dimension of international trade for all times to come. Though it was conceded that states think in terms of geography and population which are the relatively stable factors defining their domain but the case of markets is different as they are defined by exchange and the extent of the forward and backward linkages that derived there from. The borders of markets are acknowledged to be dynamic, transparent and porous although they rarely coincide exactly with the borders of states. When trade within a market involves buyers and sellers in different nation-states, it becomes a vital part of international trade and the object of political scrutiny.
The subject of differentiating international trade and domestic economic activity has also attracted widespread attention and the international exchange of goods, services, or resources with another country raises many political questions of national interest, especially questions concerning the economic and military security of the nation. Apparently the tenets of economic activity may seem quite akin to general economic principles but in international terms they vary in context and practice. In this context it is mentioned that exports are desirable because they increase a country’s monetary reserves and create jobs whereas imports should be avoided because they create dependency, reduce national reserves, and threaten domestic business and labour interests but in international trade parlance their interpretation is different and often creates issues that increase and become complicated in certain cases.
Many circles in the corridors of power in many states while conceding that exports create jobs but their full impact on national security depends upon what is exported to whom and on what terms. An export of technology that has critical military or economic applications tends to weaken national security. Consequently, countries have frequently imposed export controls for both economic and military reasons. Exports of primary products at unfavourable terms of trade with respect to manufactured goods and technology can create fears of economic dependency. Although a trade surplus does increase reserves yet an excessively large bilateral surplus of exports over imports can create political problems such as those that China is currently experiencing with respect to the US. High export penetration is sometimes seen as an aggressive policy by the target country that may react to defend its perceived security interests. A country therefore has an interest in managing the nature of its exports to other countries and in monitoring its trade relationships with other countries.
Countries also pay attention to apprehensions that imports also raise complex security issues as imports may reduce or threaten domestic employment, create the potential for external dependency and reduce domestic monetary reserves but there is more to the trade policy than simple protectionism. Imports may be vital to domestic military and economic security so that national interest requires secure sources of specific imports, not necessarily fewer of them. This is especially true regarding high technology military hardware which may be assembled in one country but use parts and services from a number of other countries. It may be impossible or impractical to avoid some foreign sourcing, so attention shifts from eliminating imports to establishing secure supply chains. Willingness to permit imports from foreign countries can also be used as a foreign policy tool and this problem has remained the focus of attention of many high-importing countries who face the issue of powerful exporting countries that use access to its domestic market as a bargaining chip in negotiations with other countries.
The linkage of imports with political considerations is now an issue that has assumed gigantic proportions. They have resulted in trade embargoes that are employed as an economic tool of foreign policy and a great deal of international trade focused upon the political economy of trade policies. The logic of an embargo is to shut off imports of many vital items and reduce export earning, thereby reducing domestic welfare and providing the state with an incentive to change its policies. The design of the postwar international trade institutions was heavily conditioned both by the free trade views and by the interwar experience of beggar-thy-neighbour trade policies that created an environment of destructive competition and retaliation. But simultaneously many international trade organisations aimed at progressively reducing the barriers to free trade through multilateral negotiations.
The simple fact that all such efforts to ensure free trade have not succeeded in countries from stopping countries from using trade tools to further their own foreign policy goals whenever they could. The current environment is where the political and the economic viewpoints of international trade compete for attention. The advent of free trade areas such as the North American Free Trade Area (NAFTA) and customs unions like the European Union (EU) provides a good example of the political economy of international trade as they frequently use economic tools to achieve political goals. One of the political goals of European economic integration was to strengthen the western Cold War alliance and one of the political goals of NAFTA was to stabilise and strengthen Mexico’s democratic system. The economic benefits of regional free trade are intended to compensate states and their citizens for the loss of sovereignty and other political costs they may bear in forming a regional bloc. Thus regional blocs create both political and economic benefits and, at the same time there are political and economic costs. Politically there is the problem of the democracy deficit.
It is evident that economically there is the problem that regional free trade is not always consistent with global free trade. International trade has always been at the centre of political economy and is likely to remain so in the future. This is not so much because of the economic and political importance of international trade itself as due to the fact that trade is a mirror that reflects each era’s most important state market tensions. In the 1980s and 1990s trade, through regional economic integration, was a tool to consolidate regional interests. With the advent of globalization and the creative economy powered by advanced information technologies, trade has become a controversial issue. TW
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