Economic Policy

How Nations Benefit From Trade, Stories From The World

As trade wars and tariff barriers comprise the news of the day, the negative effects of globalization are being strongly highlighted. Federica Russo presents stories from around the world that elaborate on the nuanced benefits of globalization and international trade.

BY: FEDERICA RUSSO

In the South of China, in a city not that far from Guangzhou, here lives Lian, a young 26-year-old lady, who stands up to her parents’ wishes of seeing her married. Traditions are important, but not when they could deal with dreams. She needs to fulfill herself professionally, participating actively on the global stage which she might have seen only on TV. Lian has always been decisive, especially when she decided to work for a local plastic firm, trying to learn as much as possible each day. The salary was not great, but the sales agent position could give her satisfaction and, maybe one day, Lian would have been able to save money and discover Europe, seeking her personal corner in the world. But somewhere along the line, financial problems arose within the company: The threat of dismissals was high. It goes without saying that Lian was worried; this job was her gateway to a new life. Several months had gone by when an opportunity arrived: a partnership with a European company. There were no boundaries and the possibilities had to be recognized.

In the Mezzogiorno region in Italy lies Puglia. The term is used to indicate Southern Italy which is in a profound economic recession. This is the experience of a 17-year-old boy. His name is Andrea and his goal is to become a fashion stylist, just like his grandfather. Unfortunately, his life is not carefree. Since his father left the family, Andrea has been living with his mother and two younger brothers. Without much money, this boy learned quickly what it means to renounce. The low-priced clothes that he could buy at the Chinese shops and the Asian low-priced fabric he could find online were the only way to become independent. Thanks to them he could make his own clothes and sell them.

In recent weeks, lengthy discussions on international trade were held. Within this framework, the negative effects of globalization were strongly highlighted. According to experts, the negative consequences were led by a sort of Darwinianan selection process between companies and linked to the high level of competition in the markets. Nevertheless, to those effects, in this excerpt not denied, the story of Lian, Andrea, and people like them, should be added in order to understand the advantages of an interconnected society.

Within the last few weeks, President Donald Trump announced new duties on China. The Trump Administration revealed plans for $50 billion on products encompassing 1,102 categories of targeted goods made in China. The US’ announcement prompted an immediate reaction by a Chinese Foreign Ministry spokesperson, Geng Shuang, who confirmed measures to retaliate.

The US tariff move followed the imposition of duties on steel and aluminum imported from the European Union, Canada, and Mexico. The America First strategy appeared unstoppable even during the last Group of Seven Summit, where the trade negotiators did not find any solutions for containing the extent of the protectionist measures taken by the United States. The risk of an escalation of actions and reactions is moving forward in spite of Wilbur Ross’ statements. As reported in the Financial Times, the US Commerce Secretary drew a sharp line with the European Union but discussions are open with or without tariffs in place. The International Monetary Fund Director, Christine Lagarde, expressed her concerns on this issue which may prevent the recovery of the global economy.

The roots of international trade are deep and they could be understood through the Theory of Comparative Advantage, coined and attributed to political economist David Ricardo. The English economist took Adam Smith’s theory one step further by exploring what happens when a nation has an absolute advantage in the production of goods. This advantage coincides with the ability of making a product more efficiently than another country. Due to this, according to Ricardo, it makes sense for a country to specialize (completely) in the production of those goods produced at a relatively lower price than someone else. “Do what you do the best, and import the rest”, as the saying goes. By so doing, the productivity is increased and the resources are not allocated in sectors where the nation is performing poorly. The result is a positive sum game created by international trade where potential global production is greater than it is with restricted exchanges because this tends to combine production, offer more goods to consumers in both countries, increase product quality, raise wages, and fuel investment and innovation. The theory of comparative advantage, produced two centuries ago, remains useful for a better understanding of the dynamics that are shaping the international stage.

Lastly, why do nations implement protectionist policies? The research elaborated by Dippel, Gold, and Heblich could provide an answer by explaining how globalization can polarize politics. Votes obtained by political parties could be influenced by the effects of open and free trade within the boundaries of the considered country. The regions exposed to a decline in the employment rate tend to support right-wing parties whose campaigns could be usually characterized by anti-establishment and protectionist policies, especially with regard to international trade.

Therefore, in spite of economic variables, governments can choose a commercial measure in order to gain wider support, even when they claim to be “protectors of national interest”.


Federica Russo is an Italian student of Business Administration with a focus on Organization Design, Statistics, Corporate Management, and International Economy. With five years of experience in writing articles on world affairs, she is a contributor for the Asian section of “Il Caffè Geopolitico” where she covers articles on Chinese issues. At the moment she is working on her final dissertation analyzing the impact of the BOD composition in the multinational Oil Companies.

Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.

Photo Credit: Financial Tribune

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