Viewing international trade

ByM Ali Siddiqi

writer who contributes to leading periodicals


November 19, 2022

Viewing international trade

M Ali Siddiqi evaluates the
imperatives of international trade

Viewing international trade is a consistently evolving issue and resultantly is full of contentious issues. Its very nature is fraught with self-interest as on one hand it has ensured human sustenance and, on the other, has caused tremendous conflicts. The interconnectedness, therefore, of international politics and international economics is today 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 and the result often is long drawn conflict that often gets complicated. Most of the current global problems are associated with some kind of issues connected with trade though they are not made apparent most of the time and are not kept at the forefront.

The problem here is that states think in terms of geography and population which are the relatively stable factors defining their domain while markets are defined by exchange and the extent of the forward and backward linkages that derive there from. The borders of markets are 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 international trade and the object of political scrutiny. International trade is fundamentally different from domestic economic activity 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. For example, exports are desirable because they increase a nation’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. The mutual astigmatism that hid international politics and international economics from each other cleared in the 1970s as a number of dramatic international events made plain how tightly the two fields were intertwined. The oil embargoes of the 1970s and the breakdown of the Bretton Woods monetary system are frequently cited as key events in international political economy’s development.

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. Nations 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. And, although a trade surplus does increase reserves, 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 nation, which may react to defend its perceived security interests. A nation-state therefore has an interest in managing the nature of its exports to other countries and in monitoring its trade relationships with other countries.

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 IPE of 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 nations can also be used as a foreign policy tool. During the Cold War the United States frequently used access to its domestic market as a bargaining chip in negotiations with other countries.

Linking imports with political policies has continued since the Cold War, too, as illustrated by the US and European Union negotiations with China regarding entrance to the World Trade Organization. Trade embargoes are another economic tool of foreign policy and a great deal of IPE is focused upon the political economy of trade policies. The multilateral economic embargo on South Africa linked that nation’s policy of racial apartheid with international trade. 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. Thus the mission of the WTO, and before that the General Agreement on Tariffs and Trade (the GATT), was to progressively reduce the barriers to free trade through multilateral negotiations.

This movement towards global free trade, however, did not stop states from using trade tools to further their own foreign policy goals whenever they could. Thus we live in an environment 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. As more and more policy decisions are made at a level above that of the nation-state, the link between citizens and policy is necessarily weakened which may weaken the legitimacy of government generally. This has further complicated the arena of international trade as it is now tied to multiple linkages.

Economically there is the problem that regional free trade is not always consistent with global free trade. International trade has always been at the center of IPE 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 of the fact that trade is a mirror that reflects each era’s most important state market tensions. In the Cold War international trade was simultaneously a structure of US hegemony and a tool of East-West strategy. In the 1980s and 1990s trade, through regional economic integration, was a tool to consolidate regional interests. With the advent of globalisation and the creative economy powered by advanced information technologies, trade in intellectual property rights has become a controversial IPE issue. International trade will remain a central focus of IPE even as the specific trade problems continue to evolve. TW

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