This week on the Democracy that Delivers podcast, President of the Organization of Women in International Trade Andrea Ewart talks about why trade matters. Below she further elaborates on the conversation and gives a few key reasons why. Listen to the podcast here:
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Why Trade Matters
By Andrea Ewart
I wrote this blog because I wanted to give a more thorough answer to the question posed in the podcast – “Why does trade matter?”
Trade is nothing more than the exchange of a good or a service in exchange for something of value. International trade occurs across national borders. Countries have been trading with each other – and weighing the pros and cons of doing so – for thousands of years.
Why don’t governments simply encourage their citizens to grow or produce enough of what the country needs and just buy and sell to each other? Here are a few key reasons:
Wealth Creation: The ancient and powerful civilizations were all centers of trade. The Egyptians, for example, were masters of trade in the ancient world, bartering excess crops and precious metals for such products as cedar wood from Lebanon, ebony and ivory from Africa. Trade was also integral to ancient Babylon. It exported its agricultural goods, which it had in excess, for desired but scarce natural resources. Today, most countries derive the larger share of their income (Gross Domestic Product or GDP) from activities linked to international trade.
Economic Necessity: Like ancient Babylon, some countries have to trade. Saudi Arabia’s deserts hold 16% of the world’s known oil reserves. 90% of its export earnings come from petroleum. It imports the machinery it needs to extract the oil and most of its foodstuffs. On the other side of the world, my home country of Jamaica is a beautiful tourist destination that offers sun, sea, and sand year-round. It does not, however, produce the tractors to build hotels or guest houses. And even if it could, should it? The economic theory of comparative advantage says that a country benefits by focusing on the goods or services that it produces better as compared to other areas of economic activity. Jamaica exports its tourist products/services and earns the revenue to import the tractors and other goods. Countries with a more diverse economic base also often specialize in the areas in which they have a comparative advantage. An ideal scenario is for each country to contribute to the global economy what it does best.
Global Production: The globalization of production has allowed manufacturing to be launched and organized on a global scale, with different phases located in the most advantageous geographic location. This has created opportunities for small companies around the world to become the supplier of just that special part, for example, that Company Y needs. A significant portion of today’s trade is the movement of goods and services that comprise part of a global supply chain working to produce and deliver finished goods to end-users around the world.
Consumer Choice: Today’s consumers have an unprecedented array of choices! They can select from a wide variety of goods from around the world in search of the products that best meet their needs and budget. Cell phones, for example, have become ubiquitous. Consumers in many developing countries rely on them for conversation, to track weather and prices, for financial transactions, and more.
Everyone stands to benefit from trade. Yes, there are ongoing challenges. The way forward is to find the right mix of trade policies that maximize those benefits across countries, socio-economic groups, and gender.
Andrea Ewart is the president of the Organization of Women in International Trade (OWIT). She is also owner and CEO of Develop TradeLaw, LLC.