In an increasingly globalised world both trade and investment are overcoming geographical and political boundaries, making themselves relevant throughout the world. While some see the increasing interdependence of the world as a threat, in reality a well-managed globalisation could actually bring huge benefits to those who live in developing nations.
It has the potential to raise everyone, regardless of their background, to a higher degree of prosperity by removing unnecessary hindrances to the advancement of civilisation. Trade is a perfect example of how globalisation can make everyone better off by removing the inefficiency and deadweight which exists under current arrangements.
As the citizens of most developing nations are quite poor they tend to consume less, meaning that the domestic market for products is usually quite small. This means that producers who live in these countries will want to export their goods and services so that they can sell them in foreign markets.
However the countries which import these goods often impose tariffs which are like a tax on everything that comes from abroad. This means that part of the final selling price is actually taken by the government, reducing the number of products sold (as it pushes up the price) and lowers the income of the producer (by giving them a lower proportion of the final selling price).
A free trade system removes these distortions and in theory should allow consumers to buy more goods for less, while producers sell more goods and receive more of the revenue.
Although a system of free trade is generally regarded as the ideal there are occasions when some limited forms of “protection” can be useful. For example in some countries there are “infant industries” which would find it very difficult to compete with huge multinationals from the USA, EU and South East Asia. There are also occasions when the tariff which the government takes is an important source of income which can be used to invest in infrastructure, education and health.
Despite these exceptions the aim of a world without trade barriers is both just and desirable. To bring about such a system will require developing nations to reform their own trade restrictions while lobbying the West to do the same.
Under the current situation the EU, USA and Japan impose quotas and tariffs on agricultural imports while heavily subsidising their domestic farmers. This increases the price which Western consumers pay for their food, increases the burden of taxation on Western taxpayers, and devastates developing nations who cannot sell their products in Western markets. The EU then inflicts further injury on these nations by providing additional subsidies to its farmers to sell unfairly cheap goods abroad so that producers in the developing world struggle to even compete in their own domestic markets.
Recent negotiations have attempted to address the inequalities in the global trading system, and a preliminary agreement was reached in Cancun in July 2004, but all sides need to work harder at implementing and expanding their reforms.