Int Trade is a Zero Sum Game PDF

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International trade is a zero-sum game. Discuss. In order to fully discuss the concept of international trade, an understanding of both the positives and negatives of international trade is necessary. Through the use of case studies, history, empirical evidence and generally accepted economic theories we refute the idea of trade being a “zero sum game”. The net gain of international trade drastically outweighs the drawbacks associated with it, that being said, its negatives must not be overlooked. International trade refers “the relative absence of restrictions to the flow of goods and services between nations” (Cavusgil, Knight and Riesenberger, 2008). Global trade was borne of the necessity for raw materials to feed the industrial revolution throughout the 18th and 19th century. As countries departed from mercantilist values, where net exports were maximised and precious metals were seen as the key to national prosperity, governments began to understand the economic potential for international trade. Adam Smith, seen as the father of economics, advanced a theory of greater international trade and a reduction of protectionism, stating any governments that interfere with the trade of its private people to “be either a useless or a hurtful regulation” (Smith, 1776). While elements of protectionism undoubtedly nurture industries within developing countries, global output and benefits associated with it are increased as a result of the open flow of goods and services. An age of imperialism began in the 19th century as European powers sought to sell their products and invest capital globally as well as gaining further access to raw materials and cheap labour. While less developed countries loss out as local resources were exploited, a global structure had been established to accommodate the vast consumption of Europe and The U.S. from the industrial revolution onwards, laying the groundwork for international trade today. Developing nations often suffer the negatives associated with international trade. These include environmental damage, labour exploitation, child labour, domestic industry failure and loss of national sovereignty. As global output rises its impact on the environment and resulting waste has been of growing concern over the past decade, approaching crisis point. That being said, international trade not only refers to the exchange of resources and tangible goods but also technologies and innovation. A global effort is being made to counter the impact trade has on the environment. The Paris Agreement is an example of such neutral agreement among developed, trading nations. This agreement is made possible through the strong ties and interdependence among nations, where policy can be agreed upon an

introduced effectively. While some social effects of international trade are subject for debate, there is an undeniable exploitation of labour in developing countries. Despite the fault being with the organisation itself, governments must co-operate to regulate and monitor labour within its country, but also, for developed countries to establish a culture where the purchasing of goods or services borne of exploitation and unsafe conditions are rejected, where a culture of collective due care is established (James, 2012). International trade’s influence on national sovereignty and the decision making process of governments is decisive. Whether or not this is seen in a negative light is disputed. Trade often opens up young industry, forcing them to adjust and grow or fail. In terms of consumption, a far greater choice in goods and services is provided. However, some feel multi-national corporations (MNCs) bare too much power within many economies. This power can be shifted away from certain MNCs through opening up of international trade further, where MNCs fail, domestic business will flourish, more competitive and efficient than ever. When larger firms succeed, there are corresponding benefits, exporting plants in manufacturing have been shown to be more productive, pay more to employees and invest more in labour (Bernard, Jensen and Lawrence, 1995). Allowing competition within the nation results in a ripple effect for economies. A tangible example of the effects of trade was necessary, we felt a country with little trade and subject to trade embargos might be of particular use, thus, Cuba was chosen as a case study. Early Cuban relations with The U.S. were positive, Cuba being the 7th largest export market for the U.S. prior to its trade embargo. At one point The U.S. accounted for 67% of exports and 70% of all imports. Cuba became a middle income country, among the richest in Latin America following the profitability of sugar exports throughout the 1920’s. Approaching the fall of Cuban dictator Batista, Cuban income per capita were between 50% and 60% of European levels (Ward and Devereux, 2012). Following the Cuban revolution and rise of socialist government under Fidel Castro, the balance of payments from U.S. trade fell to zero, income per capita since then has been drastically lower, before trade with U.S. was re-established under Barack Obama’s presidency income per capita was approximately $14,000 (Data.worldbank.org, 2017), roughly 34% of average EU income per capita at the time (Tradingeconomics.com, 2017). Moving away from the drawbacks of international trade we sought to outline the key benefits of global trade, where there is no restriction in the flow of goods and services. Its

prime benefit being increased output. As Adam Smith argued, a country that specialises in particular strengths, areas where it possesses an absolute advantage, the global output and thus prosperity will be increased. This concept paved the way for modern economic thinking. While absolute advantage may not be as clear cut in todays globalised economy, countries will indeed undergo substantial economic growth if it can provide an export of value to any industry. The removal of tariffs and general barriers of trade, frees up the potential for substantial economic growth globally. We refer to the Production Possibility Frontier (PPF) (Figure 1) as a visual aid for this concept.

Figure 1 Consider the two countries above, where Candonia can produce 32 million lemons or 48 million pounds of tea. While Sylvania can produce 48 million pounds of lemons or 24 million pounds of tea. In each scenario the opportunity cost of producing one is the corresponding good. Where Candonia focus on the production of tea and Sylvania on Lemons, importing the good they are not producing the country can profit from the trade-off instead of producing a smaller amount of both. This concept applied to the millions of goods produced within countries results in a greater net output of goods and services globally. This specialisation of labour will also employ greater numbers due to greater output. This concept can also be applied to intangible assets such as knowledge and experience, as the opening of international trade enables nations to attract innovation and entrepreneurship in industries.

Through opening to international trade, goods are imported at cheaper prices, employment is supplied through growth and development of new industry, and greater interdependence between countries promotes stability globally, it becomes clear trade is an essential if not defining factor in the political, social and economic dimensions of our globalised world. While certain nations seek to counter the loss of domestic jobs and foster inefficient industries we show in the case study of South Korea, that the opposite cultivates economic growth, often at a dramatic rate. Over the last 5 decades the Korean economy has experienced exponential growth. Its rapid growth has been driven by an export oriented development strategy which has led to a massive increase in trade volume. (Park, 2014). Prior to 1960, The Korean economy was a truly desolate and backwards economy, income per capita figures were as low as developing nations such as Haiti and Yemen. Poverty and unemployment were widespread with 40% of the population living in absolute poverty. (S.Kim, 1991). Today, the Korean economy is the leading model of economic development. Experts say the Korean experience holds many lessons for developing countries throughout the world as they struggle to modernize in a highly competitive, globalised economy. (Byongwom Bahk, 2012) In 2011, Korea succeeded in becoming a member of the USD1 trillion club, reinforcing the fact that Korea is today, one of the strongest trading nations. During the rise of the Korean economy, Korea experienced economic turbulence twice. The Asian financial crisis caused negative economic growth causing their currency to be heavily devalued. The International Monetary fund provided Korea with a bailout package of 21 billion dollars in 1997, the bailout was paid back in full by 2000. During this period, the Korean government established an extremely efficient export driven trade policy. These trade policies were so efficient even during the global financial crisis, Korea recorded economic growth of 6.2% in 2009, the highest growth rate in OECD countries. (Park, 2014). As exports and trade grew GDP figures followed. Minimum wage and standard of living rose significantly as Korea transformed from a developing to a developed nation. Reinforcing the fact that Korea was now a dominant force in international trade. A report by investment bank Goldman Sachs suggests it will be the world’s second-highest per capita income by 2050. A similar report from Goldman Sachs proposed that Korea would soon join the list of BRIC nations becoming a real leader in global trade. (Kupchan, 2012).

The effects of trade are truly evident in this case, under the correct political and economic structures. South Korea of course being in stark contrast the North Korea’s autarky government, where poverty is extensive, life expectancy low and income per capita approximately $1400 (BBC News, 2017). While natural endowments such as oil, coal and gas are of notable advantage in international trade, Michael Porter points to a countries ability to innovate as the defining competitive advantage of nations. He references the determinants: factor conditions, demand conditions, relating and supporting industry and firm strategy, structure and rivalry as the key attributes that foster a competitive business (Porter, 1990). Porter argues an element of specialisation with regard to assets and skills provides firms with a competitive advantage. This being of particular relevance to the case of South Korea, its innovations and capital being its most notable strength. In conclusion, the advantages of international trade far outweigh the drawbacks associated with it. Its impact on the world since the 17th century is undeniable, where trade has brought both directly and indirectly social, political and monetary gains. Nations that push back at the rise of globalisation, developing a protectionist policy almost always fall behind trading nations. International trade is certainly not a “zero sum game”, as we have shown, the removal of trade barriers and autarky from global trade is the key to the continued economic growth and prosperity of nations.

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