Last week, a ship got stuck in a canal, and brought international trade to a gridlocked traffic jam. The ship called “Ever Given’ is a 400-metre container ship, that was transporting containers of goods, from one part of the world to another. The Canal is the Suez Canal – a 161-year-old passage between the Mediterranean Sea and the Red Sea – which cuts short trade routes between the east, and Europe, by 2-3 weeks. Owned by the Japanese Imabari Shipbuilding, registered in Panama, carrying Malaysian cargo to Rotterdam, and staffed by an Indian crew – the Ever Given is, in a way, a metaphor for today’s global trade.
All of global trade is based on a fairly old economic principal called comparative advantage. It essentially means that any economy would be better at exporting things that it makes more efficiently – either because of access to raw materials, or because of a skilled workforce – and importing things that it makes less efficiently. For example, if India made microchips more efficiently, and clothes less efficiently than Bangladesh – then logically India should trade microchips for clothing with Bangladesh. Similarly, if China can manufacture camera lenses more efficiently than Japan, then global trade in camera lenses will move from Japan to China.
And we can see various aspects of comparative advantage being played out in every day markets. Solar Panels, for example, manufactured in India cost more than the same configuration of solar panels manufactured in China – even if you add shipping costs. And this means that Indian solar panel manufacturers are at a comparative disadvantage while competing with their Chinese counterparts.
Since World War II
In the years since the second world war, and the era of decolonization, global trade has been seen as a global good. In a way, this was to ensure that both the old colonial powers that gave up territory, and the new empire of the United States, had unrestricted access to markets – especially those of newly independent countries. While countries like India and China followed a protectionist path to their future, newly independent nations in Africa, Southern America and even nations like Pakistan found that allowing relatively free global trade would keep their elites happy.
The big change for India and China came, when they liberalised their economies and liberated their corporations to compete in worldwide markets, while opening up their economies to foreign competition. China liberalised after the death of Mao, and India liberalised in 1991, after the government almost had to mortgage the family gold to get India out of the deep economic crisis it was in.
For both India and China, with their billion plus population – the major comparative advantage comes from deploying highly skilled, and relatively low-cost labour. China can manufacture computers better and faster and cheaper, not just because it has state of the art factories, but it has extremely competitive rates of wages.
Similarly, India is in a unique position to offer services – especially in IT and linked areas – at a fraction of the price. It is this that enabled China to become the factory for the world, and India the back office. It is this growth that rankles.
Ever since India and China have begun gaining dominance in global trade – to different extents – the murmurs of job losses in the west have been growing too. And this has also coincided with economic downturns world over.
Dips in global trade
According to WTO, there have been two dips in global trade in the last 20 years -the first was just after the 2008 crash, and the other is pandemic driven. In both cases it didn’t recover as well as it should have.
For the longest time, it was the conservative wing of politics that pushed for freeing up of trade. The left opposed it for its impact on jobs. Free trade was seen as something that would benefit the rich without any impact on the working class. However, the freeing up of trade saw jobs and prosperity rise both in the west, and in developing nations. Millions got lifted out of poverty in India and China as a consequence of economic liberalisation and freer trade. However, in the 2000’s there was almost an axis jump for political views.
The right wing movement, that is on the same side of the political spectrum as the conservatives – began identifying with the working class voters, and their insecurity of being left behind; combined it with xenophobia and concocted a lethal cocktail of hate, insularity, and trade sanctions. Part of the right wing demand in the west has been the cutting back of trade and shipping jobs back. Trump’s term as President was filled with protectionist moves, primarily against China. And the Biden administration doesn’t look like it wants to reverse these.
The real problem
But the real problem is not trade. The real problem is the level of deregulation of western markets to a point where nations do not have any modicum of control over transnational corporations (TNC). The bending of regulatory will to the whims of the TNC’s, especially regarding taxation has led to a world where many of the largest companies pay next to nothing, in most of the nations they operate in.
The problem is not trade. The problem is greed. And unless western governments look at challenging the might of TNC’s and establish a regulatory framework that covers employment laws, and taxation – trade is going to be stuck between the two banks – jobs and national pride. Economies run on money. And that money comes from consumption and taxation. A restriction on trade will reduce both.
A framework that ensures TNC’s pay their fair share of taxes would ensure growth and prosperity for all. The question is whether western governments are ready to take on the MNC’s. else the global trade will be stuck like the Ever Given.
The writer works at the intersection of digital content, technology and audiences. She is a writer, columnist, visiting faculty, and filmmaker.