New Internationalist

The Facts

Issue 204

new internationalist
issue 204 - February 1990

Trade - The Facts

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Drowning in a sea of troubles. Too many Third World countries are still stuck producing primary commodities, unable to move into the more profitable area of processing and manufacturing. This leaves them prey to commodity speculation thousands of miles away, unable to plan from one year to the next. They could break out of the trap and realize the potential of trade - if only rich countries did not club together to prevent them.

 

 

HOW IT GROWS

International trade has grown almost without interruption since the eighteenth century at least. Nearly always it grows faster than production. This is why it is sometimes called the 'engine of growth'. Only between the two World Wars, a period dominated by the Great Depression of the 1930s, did trade grow less fast than production. Rates of growth in trade today are much less spectacular than they were in the 1950s and 1960s, but trade still grows faster than production. This offers scope for new exporters to produce for world markets.

Percentage growth rates, 1720-1985¹

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HOW IT CHANGES

Slowly, all too slowly, once-poor countries have been increasing their share of world trade in manufactures. Not all of the increase comes from the classic 'Newly Industrializing Countries' of South Korea, Taiwan, Hong Kong and Singapore. Mexico and Brazil have been industrializing for many years, and are being joined by Thailand, Malaysia, Morocco, Mauritius and many others. India, Pakistan and China are beginning to move. Meanwhile the market shares of both Europe and the US are eroding.

Percentage shares of world manufacturing trade2

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HOW IT HURTS

Commodity prices fell throughout most of the 1980s. The fall was particularly severe for agricultural (as opposed to mineral) products. This played a big part in the 'Debt Crisis', as poor countries had to borrow to make up the difference. It also forced them to compete with each other - which sent the price of their commodity exports down still further.

Nothing makes it clearer that developing countries have been losing out than 'the terms of trade' - how much you get paid for what you export compared with what you have to pay for imports. Because Third World countries export primary commodities (which have been falling in price) and import manufactured goods (which have not) they have become poorer.

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WHO IT BENEFITS

The world divides clearly between countries that have got richer during the 1980s and those that have got poorer5 (measured by increases or fails in GDP6). A total of 48 countries have been getting poorer during the 1980s - almost as many as those that have got richer.

The countries that have got richer, like South Korea or Malaysia, increasingly export manufactured goods for world markets, not primary commodities. Those that have got poorer, like Ethiopia and Zaire, are almost all totally dependent on the export of primary commodities.

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WHERE IT GOES

Developed countries still have a virtual monopoly on world trade - a great deal of their wealth depends on it. The value of their manufactured exports is seven times greater than that of developing countries. The Eastern trading area includes all centrally planned economies - thus it includes China and Vietnam which are more normally grouped with developing countries.

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1. International Trade 1986-87. GATT.
2
The Financial Times, London, 26 September 1989 and GATT.
3
World Bank.
4 The Financial Times, London, 26 September 1989, IMF and World Bank.
5.
World Bank, World Development Report 1989.
6.
Gross Domestic Product (GDP) equals Gross National Product (GNP) less remittances from abroad.

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