Fundamental flaws of int’l trade
Since 1994, the adoption of GATT in international trade negotiation has brought unprecedented rise of business among the nations with the motto of non-discrimination by focusing on trade liberalization in manufactured goods, emphasizing on comparative advantage of each countries. Trade negotiation is one of the hotly debated issues when it comes to globalization. The advocates of the globalization claim that international trade will bring manifold benefits for both advanced, industrialized and developing countries by providing better growth, efficiency and productivity.
The critics of globalization argue that it would create unfair competition and expand the gap between developing and developed countries in terms of per capita income, technological advancement, education and innovation; putting developing countries in disadvantageous position. The notion is that it is hardly possible for a corporation in developing country to outperform one in developed country by achieving efficiency and lowering the cost of production.
Evidence shows that in developing country there are so many bottlenecks such as poor infrastructure, high interest rate, limited resources, interruption in energy supply, lack of the government incentives and sophisticated technological facilities that pose threats anda challenges in the way of achieving efficiency and productivity. Meanwhile, it is somewhat clear that globalization does not bear as much progress or benefits for the both developing and developed countries as the advocates of the globalization expected.
At the same time, globalization does not produce that much pressure or disadvantages that its' critics believed would do. It is undeniable fact that international trade has helped hundreds of thousands of people to get out of the extreme poverty in china, India, Bangladesh and in many more countries and turn into growing middle class in recent phenomena.
The truth is that developed countries are the main beneficiary from globalization as they avail more than 70% of the benefits produced by it and the rest 30% is for developing countries. We cannot deny the rise of some emerging economies like china and India, whose growth substantially depends on export earnings, which is vastly facilitated by globalization. WTO could not ensure a level playing field for both the parties, which primarily caused this trade imbalance.
Rules and regulations are not advantageous for the developing countries, which made the problem more severe. In majority of the international trade agreements, the developed countries design the rules and policies (formulating some underlying hidden conditions such as export quotes, rules of origin, technical barriers, safeguard measures, anti-dumping tax) serving their own interests and leaving little scope for developing countries to bargain with them.
Moreover, the above-mentioned non-tariff barriers act as obstacles in the way of improving export earnings for the developing countries. The most terrific consequence of this sort of international trade is that it facilitates the rise of wealthy billionaire businessperson in developed countries further escalating the income inequality and gap between industrially advanced and developing countries.
The recent trade war, initiated by united states of America has added a new dimension in international trade where Trump administration of US taking conservative trade policies by imposing 20% tariffs on Chinese manufactured steel goods and 10% on aluminum products has brought changes in international trade scenario which tend to affect almost all the economies of the world and has forced the other countries to give a deep thought on it.
After some reactive initiatives by China this tariff, imposition on Chinese products by US was further extended to more than 800 Chinese goods amounting $200 billion US dollar. The incumbent president of USA, Donald trump in his presidential campaign announced that he would no longer allow other countries to take advantage of US and would reduce trade gap by decreasing the import from china and other surplus trade countries.
He also stated that he would create new jobs by facilitating investment and retaining manufacturing jobs in their own country, which is now shifted to china. Being a believer of supply side economics, Donald trump believes that lowering tax rate will enhance the profitability of firms, consequently increase its investment in the country. Although, such kind of policies could benefit the economy in short run but in the end they are of no use.
It is true that United States has long been experienced a current account deficit which reaches new highest to 560 billion. It is not the stake of the developing countries rather the stake of the capitalist investors who are investing in developing countries to maximize their profit. Moreover, with the structural changes, US Economy is now shifted to higher value added products, which require sophisticated knowledge and skills.
However, not all the Americans have such required knowledge and skills. Evidence shows that the average American's income has declined over the years. As a practitioner of the capitalist economy who does not take into consideration of humanities, only dealing about profit maximization and cost minimization, America itself is responsible for their current situation. The statistics shows that US imports $506 billion goods mostly consumer electronics, clothing, machineries, cell phone; unleashing trade deficit of $375 billion.
Many of these imports are actually made by American companies. They ship raw materials to be assembled in china for taking the benefit of lower cost structure and counted as imports though they create income and profit for American firms. Its undeniable fact that international trade has increased productivity, efficiency by creating employment opportunities of hundreds of thousands of skilled, semi-skilled, unskilled workers in developing and developed countries and also unleashing the enormous opportunities for developing countries which facilitates the economic development of those countries.
The trade war, of course, will affect both parties negatively and the future of international trade depends on how developed countries establish the trade policies, which will benefit for both parties and how developing countries manage the effect of globalization to save their infant economy and infant industry. The one sided policies will fuel the inequality among the nations and less scope of reducing extreme poverty.
The writer is in the Department of Finance, Chittagong University