Understanding Global Trade Policy

The concept of trade

Trade is an activity or a capacity only found in higher level animals (some birds and mammals), and a sign of intelligence. It may also include the capacity to delay immediate consumption and to do future planing, and is generally defined by the single act of exchanging something for something else, almost always with the goal of obtaining some sort of advantage.

If we think about the concept for a moment we will realize that we do small trades ourselves as part of our daily lives as we select our paths, we evaluate each decision by becoming aware of its value (cost versus benefit). So trade is intrinsically linked to the concept of value. The interchange of items or services between two agreeing parties, in its simplest form, is a buildup of the same decision process.

Trade is also often referred as a being a voluntary activity, this is not so, trade is dependent on calculation, making external pressures and presuppositions constants to consider and so trade can be coerced. Parties can be deceived, even by just having different value systems or knowledge. Trade may then imply a long term strategy, this is mostly covered in the field of study known as Game Theory and is beyond the scope of this book.

Pure altruistic trades are extremely rare, most of the trades that do not result in a immediate advantage are part of a long term gamble for some sort of political, social or economical advantage. Trade is in fact its the root of all economic relations and the cornerstone of all economic systems.

Studies with babies and children have provided further insight into our moral fundamentals especially in regards to trade, until proximately 8 years, trades are made for self benefit and even more important with emphasis in being detrimental to the opposing party (competition). Given the chance to chose a trade that involves getting 5 items and the other party 4 or getting 4 and the other party 3 the child will select the latter trade, this only changes about the age of eight when trades tend to be for the general benefit and can even become altruistic (if a small loss will signify a large gain to the other). This insight becomes also relevant beyond this specific age groups because under stress humans tend to regress to infantile behavior.

Trade also predates all monetary and legal systems, it was also the root for their creation, in legal terms, trade is defined as the mutual agreed transfer of ownership of goods or services between two parties. As complexity increases in the trade or in the constitution of parties. For example, if a party is a group, the level of fairness and individual representation of interests in the exchange may, and often does decrease. Then there is the power relation between each party, the capability for force or enforce the trade agreement (derived from the capability to secure ownership).

This has historical been proven true, take for example how trades established with aboriginal populations have occurred, and mostly notable how it occurred early-on in America, in regards to the Indian trade.

Direct trade, the oldest and simplest form of trade between distinct parties, is the immediate and singular act of exchanging goods or services agreed to be of equal value between two parties.

It is safe to say that all trade is predatory in nature, each party seeks the best position, opportunity and circumstances to reap the most benefits of any exchange. This may often include an active role in preventing the other party to know all the facts or be forced by circumstances to submit to the proposal. A trade in itself, the action not the results, can have implications that alters the immediate value of the exchange in such a way that the other party will perceive it as the best solution for a more complex problem. The items exchanged then takes the form of tokens, where the intrinsic value has a diminished role on the action and so trade becomes not only important as an mere economic and social tool but starts also to take a place as part of diplomacy and politics.

For instance the practice of exchange gifts in some cultures, often constitute an unstructured trade, circumstances not directly involved with the values of the gifts define the exchange.

Unstructured trade is, as it implies, any trade that has no fixed or pre-established structure and is often only based on cultural presets and expectations. Trades also can be seen within religious context, as ritualistic. On the other hand, beyond direct trade, that mostly only requires a verbal agreement and is immediate we have the concept of trade agreement, possible after the legal systems evolved sufficiently. Created not only to define property but to bind trade itself to the law. The trade agreement became possible, more or less during the appearance of city states, that would permit to establish and enforce written legal obligations for the parties and even commitments for future trades.

So trade is also the result of conflicting interests between parties, on one side is the need (seeking of benefits) from something that one doesn't own (or even from the action itself), by trading something else that is considered superfluous or of less value. Rarely is there any second thought about fairness or the benefits for the other party, any such considerations will only emerge if a long duration of relations is seen as beneficial.

Indirect trade, is the natural evolution of direct trade, where the owners of the goods nominated in the trade agreement may never meet, a third party acts as a mediator or intermediary and in principle has also something to gain from the exchange. This in turn opens the way to more complexity. This third party can add value to the transaction (transportation of goods, or serve as a guarantee), and if the exchange is not immediate it can act as a speculator.

The creation of currency permits the increase in complexity and abstraction of this third party and the trade system in general, it permits easier taxation, and artificial control over value. One of the problems with the creation and use of currency is that all direct trade ceases and always to the detriment of the economic interests of both original parties. Currency in any of its forms has an intrinsic cost and that costs is always passed back to the trade system, with time all forms of currency have evolved to a near zero cost allied with no direct value (to the end participants) and have become system dependent.

Influence on societies

Today is a indisputable reality, the relation, even primacy, of economic systems over societies. This primacy of economics was fostered but the evolution of societies toward predictability, constancy and regulation, more than as a social glue, trade (economic relations) have come to define policy, shaping morality and a society's future, in an abstraction of the concepts we have seen before but now applied to very large groups.

Trade is also a primary motivator for cultural exchanges and normalization of economic systems (planning, coordination, and reform of consumption and production, the acquirement of resources and establishing the value of things). Today mostly all of human activity and not only trade is technologically regulated, and so trade is now an intrinsic function of the system that supports modern human societies. Hindrance or collapse of trade if not given time for adaptation would have a huge impact in modern societies.

As trade evolved from personal needs, the new availability of a tradable surplus, especially after the discovery of agriculture, required a continual increase in complexity of auxiliary constructs that permitted the formation of complex societies. This was what permitted humanity to move from the hunter gathers tribal societies to the rise of the agrarian city state and the birth of nations, moving us from the preoccupation of land control to the age on industry and then into the age of ideas that is the harbinger of a truly global society.

In all these steps there seems to a missing notion, that this continuing evolving system, undeniably an economic driven system, has made humanity system dependent. That all functions of society today are limited by economic constrains, from simple personal freedoms to the ultimate unforgiving realization that without real systemic changes there will be no future.

There are huge problems with contemporaneous human societies, from social inequalities, corruption, moral degradation, lack of unity beyond smaller interest groups, as so as we argue how to address the trees on fire we fail to notice the structural problems of the forest.

At the end of the first decade of the second millennium, none of humanity primary needs (food, water and security) are assured. The more complexity layers our society creates the less freedom and self-realization is available to the individual and the more dangerous it becomes to the survival of the specie.

Trading practices

It is often easy to forget that trade is not only an economic exchange, it does have a deeper economic impact in people and they societies but goes beyond an economic relation. What is often defined as the "trading practice" is the accepted lowest common rules (economic, legal and procedural) and considerations (beyond simple economics, the social and ecological impact for instance) involving the trading act, this low gradient is often used or refereed to establish the capitalistic optimal cost in performing trades in the defined area.

States and Nations

Trade Policy

National Interests

We are, hopefully, at the end of an era of irresponsibility. Environmental, social and cultural factors have been so far deprecated to the mighty embrace of purely economic interests. Interests that are only beneficial for few, have affected the lives and probably the future of billions. The issue is not on the capital and capitalistic policies themselves but on the lack of a proper and clear separation of interests from those that have and manage the monetary might and those that are elected to manage and benefit the interests of the general population, this has lead to a corrosion of justice and even democratic premises.

International Trade

History and evolution

Richard Cobden Standing at the unfashionable end of Camden High Street is this distinctly careworn statue of Richard Cobden, seemingly noticed only by the pigeons. Cobden was a 19th century Manchester industrialist and MP who championed free trade and campaigned for the repeal of the corn laws. He later became a severe critic of what he saw as the militarism of British foreign policy and promoted better relations with France..

Liberalization of trade policies and globalization of supply chains have contributed to growth in the volume of freight moving through U.S. facilities, such as the port at Long Beach, CA, where this vessel is arriving (November 2004).

Protectionism

International Unions

Trade as a weapon

The embargo

Economic Growth

Infinite growth in a finite system is impossible. There can not be prosperity in a sustainable finite system, as the notion of growth is one of the characteristics of prosperity. Consumption growth needs to be kept in check if resources consumption are to match production, the only alternative is the annexation and exploitation of empty systems, and for some time now, there are no more empty systems to be added. Having said that, a sustainable system can still grow and bring prosperity, but increasingly slower pace due to relational optimizations. The easiest path is to reduced waste of resources, this will permit a short term ease as mankind attempts to create as near as possible a self feeding closed loop that maintains the required equilibrium. This is the reality we face today.

With the emergence of digital markets and the rise of information technology some growth has occurred but mostly at the cost of increased expending of energy, that is becoming increasingly costly since easy cheap sources are now becoming scarce. In many countries the peak oil (decreasing production versus increasing consumption) has already been supplanted and records in price have in recent years been broken consecutively.

This is a pressing problem, especially when referring to classic transactional goods and the realization that economical sustainability is a game of equilibrium. After production, transportation of goods is also increasingly dependent on the cost of energy. All areas of production and transportation will need to change to be economically viable to face this new reality.

In fact due to our inability to fix the background system, inefficiency and waste has created the truism that with increased complexity comes increased energy requirements, of course this view depends on what objectives the underlining system is pursuing. Mankind will probably only act to rectify the system when it will finally breaks, and then we risk it being too late or too costly to save even the basic infrastructure of society, at least for the vast majority of the population.

Evolution of World Trade, 1991-2010 in 2000 USD. 2000=100. Source: World Trade Monitor, CPB Netherlands Bureau for Economic Policy Analysis.

The 2008 banking crisis has had an visible impact on world trade, it did not affect all countries equally, but in an interconnected world the effect slowly spread to all borders. One interesting fact is that it exposed some of the rot and bad decisions that had eaten the pillars of the dominating economic model and shown that nations are becoming interdependent based on a financial system that is increasingly unmanageable and unsustainable.

Economic growth had been for some time haled as the solution to all problems, it should have generated prosperity, higher salaries that it turn would permit population to make better choices and maintain a higher level of living. That was the expectation created, the reality however has shown that the model was wrong, even before the 2008 many of the occidental countries had already stagnated and in 2011 approximately one fifth of the world population had access to only 2% of the global production of wealth. Countries members of the Organization for Economic Co-operation and Development (OECD) had worst inequality index level that 20 years ago, this means that the wealth is increasingly becoming concentrated in a minority of the population.

The situation is also unsustainable ecologically, not in a near future but today. The focus on economic growth, the lack of a coordinated population control or the creation of viable alternatives (redistribution, better education or even taking up fringe projects like space colonization) has culminated in an increased difficulty to find the needed resources to maintain the system. The degradation of the environment and attrition for control of resources will culminate in drastic measures and waste of lives, putting even the viability of human civilization and even endangering the viability of the planet. In the last quarter of a century, the economic growth model has permitted the duplication of the economy size but at the cost of more than 60% of the worlds ecosystems. Global carbon emissions have risen since 1990 (Kyoto Protocol) by 40%.

To some degree the model has taken control of the political system, even in democratic systems, where those few that control the economy have become dictators of the political process, able to subvert legal systems. This is becoming a social problem, since avenues to fix the situation are increasingly put outside of the majority of the population, as access to the political process itself has became an economic game itself. Examples abound where it is clear that the legislators are producing laws that have only in view the benefit of those that have gained control over all aspects of society by economic means.

World Trade Organization (WTO)

International Monetary Fund (IMF)

Organization for Economic Co-operation and Development (OECD)

World Bank

United Nations (UN)

Sustainability of the system

Any economic model to be politically sustainable must have as a goal the redistribution of wealth and means to avoid the creation of supranational entities that can by lack of competition exert control over the citizens liberties and aspirations.

Globalism should be sought but not forced, and must come not from economic dictates, but as an aspiration from nations to provide better and uniform political solution for problems that are now also global in nature.

Open Markets

The Opening of the markets (removing local barriers to international trade) is only the economic aspect and the first step of what we now refer as globalization.

Trade facilitation

It is not a new strategy but increasingly an obvious one, especially after the numerous merges that occurred before 2001 for the easiest strategy of the in the multinationals to pressure governments, in return for local investment and job creation to demand sharing of risks, infrastructures or exceptions or special considerations, for instance regarding taxation regulations. A good example of this type of actions was the pressure to increase ethanol production that promoted deforestation (example Indonesia) or the increase of food prices that ultimately was the cause of unrest in Africa and one of the major variables for the Arab Spring revolutions.

Monetary transfers

Costs and Benefits

The major social and political issue created by the opening of markets is that most of the major players, and primary beneficiaries, are the global corporations, even before most governments (depending on state involvement on the economy and level of state corruption).

Market Globalization

These multinational conglomerates, that by design have the need and often conquer the capacity to pressure and influence governments to facilitate and guarantee that they meet their goals, that may go beyond profitability. Most of this players handle sums of money yearly that exceed most nations gross domestic product (GDP) and pursue all avenues to avoid paying due taxes.

Globalization is not only a path, but now it is the only path available. The increasing momentum the push for the globalization of government (not specifically a centralization of government) is a necessity and the only path forward for human civilization.

We have evolved from tribal societies to city states and then to nations, in a similar process that mimics that of one single cells that have over time aggregated and collaborated to make humans what they are today, our society seems destined to evolve in a even larger and complex structure. So far no one has presented a viable model, this vacuum leaves that space to be occupied by supranational corporations that are taking control of political decisions from the states and people they represent.

Our immediate preoccupation has been, for the last decades, the adoption of human and animal rights (end of slavery, racism, death penalty), eradication of poverty, famine and disease, we have failed in every one of this aspects and the few victories we had were due to the global effort put into them, Leprosy, Poliomyelitis and Smallpox to name a few, being the later the only case we have successfully eradicated a virus in nature. Of course the goals are Utopian but much more could have been archived. Last decade climate change, energy security, diminishing biodiversity and the increase of global inequalities have been pushed to the top of our species priority list and again the results are appalling, even if again we have had small victories they aren't even as significant that those obtained before. The problem is that these issues have to get an immediate solution or we will end out of time. The realization of an energy, food or environmental crisis would result in most human societies to at least suffer a similar faith to those ancient societies befallen by the effects of the bronze age collapse.

In this environment, prosperity and growth aren't even a possibility and that puts our economical model at stake as a factor that is contributing to the aggravation of the problems, shows that all the available political solutions are ineffective and have pushed society to the brink of collapse.

Globalization is ultimately about reducing complexity, simplifying by increasing efficiency and predictability of different systems. It also promotes normalization and communality.

International Economic Integration

The ongoing globalization as with any change, even when beneficial, will always result in a strong opposition. Changes means need for adaptation and that has always a cost. The result will depend on the steps taken and the level of planing. In regards to international trade, it is not a planed change, but an evolution and to some degree unplanned and with unforeseen consequences. Globalization of trade emerges by necessity, that is based in many factors, from lack of resources, excess of unemployment or production. These have in the past, above all other factor been the topmost promoters of conquest, colonization and war. As nations got more democratized, the recourse to militaristic conflicts has been substituted by economic warfare, this promotes the emergence of new very complex and dynamic types of alliances and blocks that often go beyond simpler nationalistic interest or clear nationalistic identities.

And so, one of the benefits of a greater international economic integration is the possible suppression of large scale armed conflicts. No two democracies have wared against each-other, far from being the only reason but it is expected that the protection of common interests and stability of trade surpasses any other consideration, especially in a world where economic interests seem to surpass any other facts and the freedom of communication puts a spot light on major political decisions.

Even if the term freedom of communication can be disputed to some degree, in most cases the well being and continuation of trade is also a vested interest in most media conglomerates. Even small media outlets will depend on the continuation of business for economical viability, not only because of direct editorial control by owners but most of the revenue will now depend on multinational entities for their adds.

This has resulted in divergences being increasingly resolved by diplomacy establishing and enforcing international law and the obvious realization that humanity is bound to be increasingly interdependent and needs to work together to resolve planetary crisis arisen from over population, pollution and the collapse of the ecosystem and so cooperation, ultimately, is the only way forward.

Also with a greater integration, manageability and normalization of the system increases, promoting stability. It will be possible reduce and to quickly respond to disasters or crisis, if it does not hit the trade system itself critically. It also permits the optimization of production, for example taking into account local variables, like climate, land, water and energy resources.

The Dangers

All integration creates interdependency, this can only be seen as a value added, especially in complex and chaotic human systems, but all dependency incurs in a loss of freedom. There are of course real downsides and problems that do get aggravated or more complex, not directly by the integration itself but by the method previous centralized, non-transparent and bureaucratic systems are being made to accommodate new realities.

There are systemic issues, like if done in a monolithic, over dependent way it risks creating the problem of being "too big to fail", that a failing of a small part of the system collapses it will bring the complete system down.

Capital flow

Goods

Cultural Goods

Intellectual property rights

Erosion of diversity

Might versus right, intellectual imperialism

Labor

Workers

Globalization if regarded only from the international trade side, seems at first only to supra-national entities. To the investors of international corporations, if monopolies are avoided, it can mean cost gains in the chain of production/distribution and, at the bottom, seemingly benefit the consumer. This if considering the issue only on the side of the monetary cost of production and the price of finished product. Globalization of commerce also signifies global competition.

Of course it then becomes clear that this premises have not yet materialized as there are gross distortions in the global market. First because the globalization has not gone much beyond trade and second it has not taken in account of the social and cultural aspects of human society. In fact it has turned human labor into a commodity that is given no special consideration.

The work force of any nation depends not only on the education system but mostly on demographic policies, that have to include emigration and immigration, there are no global policy guiding these aspects besides very specific and generic issues, like refugees and political asylum and even then inconsistently.

It then becomes clear that globalization in regards to trade implies, greater mobility not only of products but of the production facilities and workers. That the stability of the system will depend on the speed of that global governance is implemented in all of its aspects, so that issues created by this facet of this new reality can be addressed and normalization can occur, putting every one in the same footing.

In the short term of course, and until structural changes are made, we will witness a "race to the bottom" in terms of wages and a constant de-localization of production due to each government implementation of short sighted measures (mostly in regards to taxes, legal alterations, emigration and immigration policies, land attribution, etc) to compete for job creation and external investment, that is not only unfair to national enterprises but it predates public goods for a quick return, delaying the evolution of the global system with the creation of artificial distortions.

Workers rights

Until workers rights are equal across the world, globalization of the work force will create more problems than it helps to solve, not only on the poorest countries, as if sociological aspects are not a global concern, the rights will tend to change to match the practices in the more populated regions of the globe, this of course results in a short term decrease in costs of production, if not only because the work force is larger and more available, but will have a long term impact in global social and ecological stability on every society.

Because of trade, jobs are lost and created every day, this has been so before the time the creation of the nation state. What is new today is the speed of change and that economy has become a supra state entity, with its own interests and players that has come to dictate the global trade policy, not for the benefit of all but of a few.

Globalization of trade has exponentiated, necessarily the numbers of affected population because at present it is done with complete disregard to any other factor than profitability, in fact it should be clear to all that as is the system is not sustainable even in a short term.

This incomplete political globalization exacerbates fears among workers and creates governmental ambivalence in regards to opening their economies. Especially in what is considered the "fully developed" (1st world) economies, as it signifies great social stress due to increasing job losses and lower wages and in general creates a instability across the globe, as it creates avoidable turbulence in the markets.

Only emerging economies (China, Russia and two of the biggest third world economies) seem to have been able to benefit to some degree, if we closely examine these countries they hold the largest reserves of resources and population and so the de-localization of the means of production was only logical and a natural correction, especially motivated by local socio-political advances.

In a perfect system, one of the net results would be that 3rd world countries would, over time have a sustainable economic boom. But sustainability of course depends on the capacity and maturity of governments to retain some of the profits and quickly move from production of raw materials to finish tradable products and improving local policies. Especially in regards to their legal systems, education, work and environmental protection policies. None of these changes are guaranteed or required by the current global trade policy, not even the basic protection of human rights, and even if recently some steps have been taken to curb corruption across borders, this is not a global stance and local governments are still locally corruptible.

Wage competition

Wage competition is really not a problem in a global trade system, the distortions of not having a complete global framework for work protection is. With the delocalization of production facilities most of the world production will, if not distorted by nationalistic policies, move closer to target markets (centers of higher population) or raw resource production, in this, energy requirements, telecommunication infrastructure and ease of transportation will also be a crucial factor in the decision process.

High wages in general results from a scarcity of workers or due to the higher specialization of the work force, that has an economic cost. National policies can be shaped in ways to determine a minimum wage or impose limitations on education, since specialization is archived by a greater level of education that takes time. The export of a specialized work force is not something that is beneficial to the producing country, even more if the state is sponsoring the education process, since the results will not directly benefit that state and if agreements are in effect like it is present across the EU the country will not only lose taxation funds but will lose control decision on the retirement plans of those workers.

The evolution of telecommunications and in general the reduction in prices of technology, has permitted an easy delocalization of some white-color jobs, especially in the information technology (IT) and business services. Today we live in an era that international sourcing of production activities will tend to increase, the so called "offshoring" and it will accelerate as nations improve their infrastructures and educational systems.

No country should formulate it's mid or long term economic policy in lower wages. The problem with already developed nations is that of mobility of the work force, it is not often practical or wanted and any increase of general unemployment especially due to the delocalization of enterprises will create civil unrest, that in turn promotes the rise to power of the more extremist political group. That themselves have an impact on that nation participation on global trade. To the far right increased nationalism and protectionism and to the far left isolationism, this of course has an high impact on the sustainability of supra-national systems or institutions and if a great number of nations are excluded from participation it will erode global growth.

Global Labor Market

One of the functions that institutions and governments must provide to workers in a global economy is in helping them navigate the global labor market, this requires that supra-national infrastructures are created so information can be easily and transparently shared to promote the adaptation of the labor market. This will have a direct impact in determining education policies, as to match workers to the market necessities.

Special consideration has to be given to the impact that workers (active population) have in supporting the local economies and government. Workers are not only part of the production but consumers themselves, this and the taxation of work and consumption, the impact it will have in demographic planing with the movement of workers across borders, if done in large numbers, will cause extreme stress to the social and cultural fabric of nations. The same phenomena that has historically occurred inside borders in a regional scale, will now occur globally.

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