What is international trade the result

economy

Supported by the idea of ​​economic liberalism, world trade expanded in the 19th century, especially since 1945. Its current structure is analyzed and illustrated using individual economic sectors.

Promoted by the idea of ​​economic liberalism, world trade expanded in the 19th century. After the Second World War, the General Agreement on Tariffs and Trade (GATT 1948) created the conditions for increasing liberalization of world trade.



Extract from:
Information on political education (Booklet 280) - World economy and international division of labor

introduction

The division of labor is the basis of modern economic activity. It leads to exchange or - in the money economy - to trade. Brisk trade is therefore an expression of a highly developed division of labor. The international division of labor produces better results overall than a division of labor that only takes place within a national framework. According to this concept, that economic power specializes in the production of a good or a service that can do this relatively best from an economic point of view, i.e. at the lowest production costs.

The core of globalization is the expansion of the international division of labor. Global markets are emerging in which goods and services are traded, investments made, technologies transferred and information exchanged. The international division of labor enables the individual countries to play to their different strengths and thereby generate income gains.

However, globalization not only has winners, but also losers. In countries with relatively abundant capital and skilled labor, capital incomes tend to rise faster than labor incomes and the wage spread between simple and skilled work is widening. This can lead to tensions in the individual countries and between them, which can plunge the western-style welfare state into a dilemma. Because in the attempt to correct the distribution of income at the expense of the workforce, which can result from globalization, the state's hands are tied precisely because of globalization. A stricter taxation of capital income could, for example, induce capital to migrate to other countries and thus restrict the scope of action for wage policy so much that in the end the desired correction does not come about and the government is caught in the "globalization trap".

In fact, the share of capital and wealth taxes in total tax revenue has fallen significantly in almost all industrialized countries. The income spread has also increased in the industrialized countries. In fact, however, this is less due to globalization than to technological developments, which put low-skilled workers at a disadvantage.

Globalization enables developing countries to specialize in the manufacture of labor-intensive products, such as clothing, while increasing wages and improving the distribution of income. In fact, countries that have opened up economically have mostly achieved higher growth and reduced poverty more than countries that have refused to open up. The problem for all states involved in the globalization process is that they have to constantly adapt to changing conditions and often feel overwhelmed.

Historical experiences

The prerequisite for the international division of labor is that the countries are equipped with different energy sources, raw materials, land, capital and labor (factors of production). This results in different price ratios from country to country between the products manufactured with the factors of production - when the borders are closed. When the borders are opened, the states specialize in the production of those goods which they can offer more cheaply than other countries. This is the source of the welfare gains that arise from the international division of labor; they are based on differences in relative prices and comparative costs between the countries involved.

Closed economies have hardly ever existed. Even in ancient times, spices, oriental fabrics, gold, silver and precious stones were traded within the accessible world. The individual national economies, however, are never completely, but always more or less open to international trade. The degree of openness depends on the respective economic philosophy, the internal conflicts and the international tensions of the time.

Mercantilism was widespread in the 17th and 18th centuries. Mercantilism is the term used to describe the economic policy control measures that the states undertook at that time to increase their national economic and commercial power. England, France, Prussia and Spain in particular did everything in their power to increase gold and money in the country by producing and exporting as many goods as possible, but importing as few as possible. This prevented other countries from exporting, earning foreign currency and converting it into imports. Overall, international trade was therefore unable to develop; Gold and money flowed more sparsely than the mercantilists had imagined.

Mercantilism was replaced by liberalism in the 19th century. The theory of economic liberalism, the division of labor and free trade, which finally overcame mercantilism in economic policy reality, goes back to the British economists Adam Smith (1723-1790) and David Ricardo (1772-1823). The "comparative cost" theorem was fundamental. According to this, international trade and the international division of labor are advantageous even for those countries which can produce all goods at lower costs than abroad. They only have to specialize in the production of those goods which they can produce relatively (comparatively) most cheaply.

The free trade postulate derived from this was put into perspective by the German economist Friedrich List (1789-1846) with the "protective tariff argument". According to this, there are good reasons for not yet massively exposing weaker countries to tough international competition in their early development phase. Especially young industries (infant industries) should be allowed to be protected even if the trading partners have already opened their own borders wide to imports.

The age of economic globalization began with the idea of ​​liberalism. International trade flourished for the first time after the Napoleonic Wars and especially in the second half of the 19th century. With the German Customs Union, the unification of German states in terms of trade policy to establish a German economic unit from 1834, the essential trade barriers had been removed in the entire later Reich - with a few exceptions. The framework conditions were stable; on the whole there was peace. New technologies favored a production that was both more extensive and more labor-intensive. Long-distance transports became faster, cheaper and safer. The trading nations agreed on gold as the foundation for international payments (gold standard). This tendency towards external liberalization was only slightly affected by restorative forces (Bismarck's protective tariff policy).

The period from the establishment of the German Reich in 1871 to the outbreak of the First World War in 1914 is considered to be the phase of the rise of trade globalization and the final stage of this phase (1895-1914) as the "golden age" of free trade. Foreign trade (measured as the average of exports and imports) rose to up to a third of the gross national product of the individual countries.

The boom in world trade was interrupted by World War I, the Great Depression that began with the collapse of the New York Stock Exchange in October 1929, and World War II.

Liberalization after 1945

The renaissance of trade globalization began in the 1950s. During the final phase of the last world war, the course was set for an unprecedented dismantling of international trade barriers in the post-war period. In 1944, the International Monetary Fund (IMF) and the World Bank were founded in Bretton Woods, New Hampshire, USA. Since 1947, the Marshall Plan pushed the reconstruction of a devastated Europe. In 1948 the General Agreement on Tariffs and Trade (GATT) came into force, under which since then, in eight multilateral liberalization rounds, the quantitative trade restrictions (quotas) and the tariff trade barriers (tariffs) have been largely removed. Import tariffs on industrial products in industrialized countries, for example, have fallen on average from around 40 percent to less than five percent.

Since 1952 there have been efforts towards the economic unification of Europe with internal freedom of trade fully realized. The European Economic Community (EEC), established in 1958 by initially six founding countries (Federal Republic of Germany, France, Italy, Benelux countries), was further developed into the European Union (EU), the most important component of which is the European Monetary Union (EMU). The EU has also been expanded to include 15 member states in several stages; on May 1, 2004 ten more members will join, besides Malta and Cyprus eight Central and Eastern European countries (Poland, the Czech Republic, the Slovak Republic, Hungary, Slovenia, Estonia, Latvia and Lithuania).

Numerous developing countries are "associated" with the EU and enjoy extensive duty-free exports there. Since March 2001, products from the 49 poorest developing countries can be exported to the EU free of tariffs and quotas. However, some "sensitive" products (bananas, rice and sugar) have been excluded from this "everything but weapons" initiative for the time being. The EU grants the other developing countries - similar to the USA, Japan and other industrialized countries - tariff advantages (general trade preferences). It has agreed free trade with the other Western European and some non-European countries (such as Chile and Mexico). As a customs union and economic community, the European Community became the model for numerous regional associations in other parts of the world. With these regional alliances, such as Mercosur (Mercado Comœn del Sur) in South America formed by Argentina, Brazil, Paraguay and Uruguay, the EU is striving for economic cooperation based on free trade.

The last round of GATT, the so-called Uruguay Round (1986-1994), brought about a serious expansion of the freedom of trade. For the first time, liberalization also included the traditionally protected trade in agricultural products and textiles / clothing, as well as trade in services. Regulations have been made for better protection of intellectual property rights (e.g. protection against plagiarism) and in favor of foreign investments. For example, it was forbidden to require investors to buy (or manufacture) intermediate products in the host country or to present a balanced trade balance.

As a further result of the Uruguay Round, the GATT was replaced by the World Trade Organization (WTO) in 1995. Developing countries in particular see their specific concerns in better hands with her than with GATT, which they see more as an interest group of the industrialized countries. The WTO, based in Geneva, is an independent international organization with a transparent and effective dispute settlement procedure in which the stronger does not automatically prevail. Under their aegis, the ninth round of world trade was initiated in Doha, the capital of Qatar, in November 2001. The Doha Round is intended to further promote the liberalization of the goods and services sector, improve and expand the multilateral set of rules and, in particular, ensure fairness towards developing countries.

The liberalization of the framework conditions for regional and world trade is impressively reflected in the statistics of the international exchange of goods. In 2002 the volume of world exports was more than ten times as large as in 1960. In the same period, domestic production, from which the export goods originate, has only quadrupled overall. The difference is an expression of the intensified international division of labor and thus increasing globalization. Apart from the economic downturns in 1974/75, 1981/82, 1992/93 and most recently 2001/2002, this progressed relatively steadily. It was hardly affected by the sharp turning point in post-war development, which in 1973 brought about the end of the "golden years" of high growth rates.

Essential features of the "new" globalization, which have become more and more apparent since the 1980s, are the rapid development of information and communication technology, the increased development of global companies and production networks, the accelerated internationalization of financial markets and the deregulation and privatization of central service areas and network sectors "like telecommunications, post / logistics, transport and energy. In addition, numerous developing countries, notably in Southeast Asia and Latin America, have unilaterally dismantled import barriers and eased restrictions on foreign investors. This happened parallel to multilateral liberalization and mostly as part of a realignment of the entire economic policy towards market economy principles, which has been observed in more and more developing countries since the mid-1980s.