How International Trade Stimulates Economy Essay

How International Trade Stimulates Economy Essay

International trade has been and is nowadays an economic force that has promoted technology and growth, spurred commerce, stimulate exploration and colonization, spread cultural patterns, and frequent fanned the flames of war. Evidently, the history of international trade has gone closely with the development of civilizations. Since ancient times, international trade brought about the exchange of different products and raw materials between one land and another. Although such kind of trade was often conducted in barter form, this interchange of products was important in social and economic development. Furthermore, international trade in its early beginnings was essential, not just because it provided people with products such as cowries from Africa to other areas, but also influenced lifestyles, customs and technology. Additionally, international trade prompted the development of record keeping and accounting, of monetary system, and of an entire vocation of commerce. In fact, it is possible to suggest that the economic and political development of the western world was spurred and enhanced by international trade. 

It is important to highlight that another distinct contribution of international trade was the promotion given to the field of map making, exploration, and ship construction technology. International trade routers ranged over vast territories, thus requiring advances in transportation in order to make possible further search for new markets and products (Kerr, 2010). Obviously, such desire for new trade routes products was the driving force that launched explorations leading to the great discovery of the new world. As technology developed and international trade progressed, these explorations were to turn up one more area of foreign trade, which is still important today. It was the import of raw materials by some nation and the re-export of manufactured and finished products. Generally, due to such kind of trade globalization, not only living standards advanced, but the incomes of nation were also increased. 

Without any doubts, in modern world the influence of trade on the income and positive development of nations is significant. A close look on the data indicates that there are many areas in which the high importance of trade can be established. It seems fair to suggest that the most critical of these areas concerns the economic growth of developing countries. During the beginning of the twenty-first century, trade has played a leading role in the constant development of global economic growth. However, the contribution of trade to economic development of developing countries depends a great deal on the political and social context in which it works and the strategic objectives it serves. Recently, a number of developing countries, especially the East Asian newly industrializing countries, were able to purposefully use the force of trade to boost development and growth within a relatively short time span. However, at the same time some other developing economies, particularly in the least developed countries, have embarked on trade liberalization in recent years, but with limited results in terms of increased growth and development (Kerr, 2010). The situation is that these countries do not use the possibilities, given by trade processes in proper way. Undoubtedly, to act as an engine of development, processes of trade must lead to steady improvements in human conditions. From this standpoint, the development and trade performance of a country cannot be seen only as the mere sum of its export and economic growth performance. Instead, it needs to be a composite notion, which is reflecting how trade relates to the range of various choices available to people in some country at a particular point in time. It depends much on the interplay among different factors that determine both human development outcomes and trade outcomes. It means that it is important to consider trade as a specific instrument, which is given to achieve an ultimate goal, namely the wellbeing of common people. It does not happen, because conventional technical analyses of trade processes of developing nations are for the most part preoccupied with liberalization policies, and usually overlook the real object of trade and growth. The other problem is that trade negotiations have far-reaching consequences for the range of choices, which common people can have by affecting their access to services, goods, and opportunities. Obviously, outcomes of these negotiations need to be judged and controlled at the basis of their contribution to human development. 

Therefore, it is necessary for developing countries to keep the spotlight on the problems faced by countries that have performed poorly, and rationally follow the steps of successful economies. The most important part of such researches is connected with the analysis of the trade policies, because there exist an opinion that removing trade distortions and restrictions can make a singularly important contribution to the wellbeing of nation, raising incomes, and boosting long-term growth. For instance, the strong growth in exports from developing countries is possible due to the steady reduction of global trade tariffs as barriers to economic processes. On average, these world tariffs have declined from eleven per cent at the beginning of the twenty first century to seven per cent in 2010s. However, there is still much evidence that developing countries face disproportionately high trade barriers and tariffs on products of export interest for them. For example, in 2010, developing countries’ agricultural exports faced a tariff of nine per cent. Unfortunately, developed countries still impose tariffs on imports from many developing countries that are twice as high as tariffs from developed countries. Thus, the example of trade policy can be the removal of taxes on export production or making the tax and tariff system as neutral as it is possible across sectors of production. One more example of potentially positive policies is the governmental recognizing that exporting is much more hard than cutting off imports, because the processes of exporting require considerable foreign marketing costs and improving levels of quality.

It is important to highlight that in Africa, Mauritius exemplifies how trade can be a powerful instrument for achieving the economic growth and stability. Its traditional exports, such as textiles and sugar, have been sustained by special trade policies that have allowed the country to constantly adapt to international competition and then develop value-added services. Mauritius’ economic growth reached an impressive average of six per cent per year after implementing specific export-oriented strategy. Moreover, other successful initiatives have been initiated in African Rwanda, where coffee exports have stimulated economic development, and in Kenya, where cut-flower exports showed a growth rate of thirty-five per cent annually over the last twenty years, sustained by trade incentives.

Considering these success stories, it is important to mention that the developing countries must be more cautious towards participating in trade competition. Modern researches recognize that the relationship between economic growth and trade openness is more complex than a simple causation. Obviously, trade liberalization does not automatically increase trade; therefore, it cannot be the only policy to implement. The reality is that the policies, connected with trade liberalization have different effects on the level of poverty and wellbeing in different countries, depending on a various factors, including infrastructure, macroeconomic stability, and the financial sector (Kerr, 2010). Thus, developing countries should expand or develop their supply capacity before opening up to competition. Undoubtedly, they will need financial and technical assistance to benefit from various opportunities that trade opening provides.

The other issue that may appear after the changes in trade policies is the problem of unemployment. Therefore, to minimize unemployment distress developing countries need to develop social safety nets. It means that as developing countries liberalize, many workers in sectors without serious competitive advantage will face unemployment. Thus, there is a need to reallocate workers to some newly growing sectors, which implies training policies, education, and unemployment benefit programs. Furthermore, in the short term, trade reform may also decrease government tariff revenues, and reduce social spending needed to face the rise in unemployment. Therefore, the international community and various international organizations should assist developing countries in addressing these costs. Obviously, such situation is one of the reasons why the U.N. system insists on integrating development policies into the specific National Development Strategy of any developing country.

It should be mentioned that the international community recognizes the big importance of trade for economic growth of developing countries through initiatives, such as the program of Aid for Trade, Financing, and Development and, quite importantly, the activities of World Trade Organization. For instance, the Aid for Trade initiative, which has been specially designed to help developing countries to build their supply capacity by productive capacity investments, developing infrastructure investments, and transition assistance could help Kenyan flower producers or Haitian rice producers to export their products to international markets. According to the latest researches, it is estimated that the global annual welfare profit from trade liberalization could be in the order of $1000 billion to $210 billion, of which two thirds of gains would accrue to developing countries. As the result, this could help lift 140 million people worldwide out of poverty by 2015.

Taking everything into account, it should be concluded that trade reform in any developing country is not about charity, but about giving developing countries the necessary tools to achieve the significant goals of wellbeing of the whole nation. Without any doubts, trade is an important instrument to reduce poverty and accelerate economic growth. However, trade openness must come with comprehensive reforms in accordance with each country’s degree of development and specificity. Thus, various trade policies can vary from stimulation of some specific branch to restriction of the trade in this branch. The situation is not stable, and any economist has to analyze it before taking trade decisions. Evidently, the international community has acknowledged all these issues in the last few years. Therefore, United Nations action in social development is crucial in helping developing countries to gain some profit from the growth opportunities provided by trade. It is essential for the global community to think over the creation of one more special organization that will work with economic problems of developing countries in different sectors of parts of the world.

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Kerr, William. (2010).Handbook on International Trade Policy. Edward Elgar Publishing. 543.