Trade’s Benefits

Well, trade has a great deal of benefits:

If trade spurs employment opportunities, and young adults (most importantly women) accept those occupations, then poverty, birthrate, urban sprawl, and conflict decrease. Agriculture has a large potential for employment as technology yielding greater outputs are produced; increased employment in this sector benefits not only those working but also the surrounding population as hunger levels are reduced. [1]

According to USTR Susan Schwab, trade is “the most effective weapon in the fight against poverty.” As investment increases, so does employment.  Programs such as the African Growth and Opportunity Act (AGOA), which limits trade barriers for African countries exporting to America, offer opportunities for investment and decrease poverty. [2]

The Cato Institute’s Marian Tupy says the benefits of free trade are evident in the principles of trade itself: trade allows for the transfer of needed goods and services, the specialization of a country’s resources, and the improvement of manufacturing methods. He cites sub-Saharan Africa’s protectionist policies and “special treatment” by the UN as the cause the continent’s decrease in percentage of total world trade from 1970 to 2003. South Africa, which has less import tariffs than its neighboring countries, accounts for almost 50% of the continent’s exports. Protectionism, he claims, decreased the need for efficient labor and innovative products.

“On the poverty front, there is overwhelming evidence that trade openness is a more trustworthy friend of the poor than protectionism. Few countries have grown rapidly without a simultaneous rapid expansion of trade. In turn, rapid growth has almost always led to reduction in poverty.”

-  Columbia University economist Arvind Panagariya [3]

Africa’s growing potential for business – a 6% growth rate in GDP is worth noting – has given it a bargaining chip for obtaining favors from possible investors, as was the case with China. For trading privileges, China “[agreed] to create a new infrastructure for Africa, building roads, railways, hospitals and schools across the continent.” So Africa, in opening itself up to trade with awareness of its new potential, gains societal improvement as well as trade. [4]

NAFTA provides a real-world example of the development a country can receive from (free) trade. In this case it’s Mexio. Working conditions, environmental conditions, wages, and production quality have all improved because of increased trade, and Daniel Griswold (again, of the Cato Institute) claims that the trade has increased democratic and social reforms in the country.  Because NAFTA increased both standards and trade, Mexico grew healthily. [5]

And, finally, trade inspires responsibility and purpose. As Tupy noted, the wrong trade policies lead to decreased efficiency and productivity. If aid is substituted for trade, then at least part of the motivation to improve is removed. And there is the issue of pride: some argue that aid is demeaning. Andrew Rugasira, a Ugandan small business owner sponsoring “trade, not aid,” says that “Africa finds itself represented not by Africans but by Bono and Bob Geldof,” and that “[aid] undermines the integrity and dignity of the people.” [4]

Sources used in this article:

1. http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:21997667~pagePK:146736~piPK:146830~theSitePK:258644,00.html
2. http://www.america.gov/st/washfile-english/2007/July/20070719121708ndyblehs0.377453.html
3. http://www.cato.org/pub_display.php?pub_id=5354
4. http://www.time.com/time/specials/packages/article/0,28804,1884779_1884782_1884769,00.html
5. http://bagentleman.wordpress.com/2010/03/06/nafta/

A Brief History of Africa: Part I

European exploration of the African continent (apart from the region bordering the Mediterranean) began in the late 15^th century, about the time at which Columbus first sailed to the Americas. Within decades, Africa was being exploited for its resources – minerals, supplies, and people – by the European empires.

Enterprising countries, including Belgium, France, England, Germany, Portugal, Italy and, the Netherlands, all wanted a portion of the continent for their own endeavors. Lands claims and disputes culminated in the Berlin Conference of 1885. It was here that the European powers effectively divided the continent to their bidding and began the “official” era of African colonialism.

There were four main forms of colonial rule in Africa [1]:

1. Company Rule – Businesses acted on behalf of nations to economically develop an area of land. This form proved ineffective (in part due to local opposition to its amoral operations), and was no longer practiced after 1924.
2. Direct Rule – The colonizing nations had an active role in governing their colonies, focusing on molding the native population into an ideal, often Eurocentric, image. Indigenous power quickly became illegitimate.
3. Indirect Rule – Another form in which the colonizers had the ultimate control, indirect rule used cooperation from indigenous leaders to pursue its interests. Although more “responsible” than direct rule, this form disrupted local power hierarchies.
4. Settler Rule – The colonists governed themselves locally (similar to England’s colonies in North America), but had to suppress the local population to do so. Generally the harshest form of colonialism.

Colonial governments, by nature, were not democratic (indigenous peoples had no representation), focused on maintaining order rather than infrastructure (caused by a lack of economic finance and the need for authority), and approached Africa with a “divide and rule” mentality – weaken the natives in order to control them. Notice how none of that was good. [1]

A 1829 Map of Colonial Africa

Economic activity in Africa was shaped by two conditions: Europe wanted money and resources, and the colonies were underfunded. Colonies exported almost all of their garnered resources and income to their parent countries and only claimed income on export taxes. Underpaid and/or forced labor was a common practice – abuses such as those detailed in Conrad’s Heart of Darkness. During colonialism, the continent experienced a migration of wealth with zero gain; untold fortunes were literally ripped from the land, never once benefiting the native population. [2]

But even more expansive than colonialism’s economic repercussions were those of regarding African society [2]:

1. The forced and “voluntary” migrations of African tribes resulted in the displacement of their culture, practices, and identity.
2. With the African men participating in labor camps and other ventures, families changed in structure from extended to nuclear (i.e. expansive to inclusive).
3. The industrialization and urbanization of Africa altered the typical rural practices and economies to reflect a city-centered system of culture and trade.
4. Colonialism encouraged the growth of Christianity and Islam; the amount of Africans identifying themselves as Christian jumped from 5% at the onset of colonialism to 50% today.
5. Education was sub-standard; that which existed focused on teaching religious beliefs, and local governments did little to facilitate schooling. Few children attended school, but those that did reaped the benefits.

Colonialism disrupted African society and exploited the continent’s resources for Europe’s gain. But even more important are the effects of colonialism to this day.

Ah, but that’s for Part II.

Sources used in this article:

1. http://exploringafrica.matrix.msu.edu/students/curriculum/m7b/activity2.php
2. http://exploringafrica.matrix.msu.edu/students/curriculum/m7b/activity3.php

NAFTA

The second side of this project’s debate involves investment – trade’s potential in developing Africa. For our purposes, the North American Free Trade Agreement (NAFTA) is a suitable starting point for how international trade agreements are created and the effectiveness of their actions.

NAFTA became effective in 1994 (it was signed in 1991) as the successor to a similar agreement that excluded Mexico, the U.S.-Canada Free-Trade Agreement (FTA), which was in effect from 1989 to NAFTA’s conception. The main effect of NAFTA was the removal of trade barriers as an incentive to increase trade between the three northernmost North American countries. [2] In addition to “eliminating tariff barriers to agricultural, manufacturing, and services trade,” NAFTA also “[removed] investment restrictions, and [protected] intellectual property rights.” Small businesses were the primary benefactor of the agreement. [3]

As a result of NAFTA’s policies, the largest free-trading zone (in 1994) was created. Environmental, industrial, and labor standards for all three countries were set to match the strictest existing standards.
Intellectual property rights were substantially increased in Mexico. Non-tariff barriers were set to be gradually phased out as well. Overall, NAFTA drastically increased incentives for and the accessibility of trade. [3]

The economic success of NAFTA for America is extremely evident:

“NAFTA . . . now links 444 million people producing $17 trillion worth of goods and services. Trade between the United States and its NAFTA partners has soared since the agreement entered into force. U.S. goods and services trade with NAFTA totaled $1.0 trillion in 2007 . . . Exports totaled $452 billion; Imports totaled $568 billion. U.S. goods exports to NAFTA . . . [are] up 190% from 1993 (the year prior to NAFTA).” [4]

But more pertinent to our discussion are the economic effects of NAFTA on the least-developed of the member countries, Mexico:

“The Mexican market is growing rapidly, which promises more export opportunities, which in turn means more jobs . . . U.S. firms are setting up joint ventures in Mexico that, for the first time, use local firms for materials and parts. The quality of goods produced in Mexico has gone up, and the biggest beneficiaries are Mexican consumers. Wages and working conditions have also improved in many areas.” [3]

“NAFTA helped to break the grip of the once-dominant PRI party over the daily life of Mexicans. It set the stage for the election of Vicente Fox in 2000 as the first opposition-party candidate to be elected president in 71 years. NAFTA has also encouraged higher regulatory standards in Mexico and more cross-border cooperation on sensitive environmental issues. A stable, democratic and modernizing Mexico is profoundly in America’s national interest, and the pact has helped to make that a reality.”

- Daniel Griswold, Director of the Cato Institute Center for Trade Policy Studies

NAFTA is a profound argument for the establishment of similar trade agreements between developed and developing countries to spur trade and, as a result, economic and societal development.

Here’s a visual comparison. (Note: the trade deficit comparison is skewed. The U.S. deficit under NAFTA is only about ~$150 billion a year.)

Way to go, former Presidents.

Sources used in this article:

1. http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement
2. http://www.law.duke.edu/lib/researchguides/nafta.html
3. http://www.referenceforbusiness.com/small/Mail-Op/North-American-Free-Trade-Agreement-NAFTA.html
4. http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta
5. http://www.cato.org/pub_display.php?pub_id=2489
6. http://www.mint.com/blog/wp-content/uploads/2009/06/cavsusvsmxeconomy1.png