INTERNATIONAL TRADE: A PILLAR OF PEACE IN THE MODERN WORLD

Trade through the course of history has been used as an agency to facilitate political partnerships and foster trust, bringing together various entities motivated by the desire to do business and generate profit. To understand how trade impacts the world, we first must understand the act of trade itself. Trade is a voluntary exchange of goods and services between economic actors. It is a mutually beneficial transaction, where both parties involved gain

So how does international trade bring about peace?

The process of globalisation has brought about an increase in international trade and greater interdependence between countries Countries are reliant on one another for goods and services, forcing countries to collaborate with one another. Montesquieu hypothesised commerce is a force for good, which civilises different groups of people, and brings them together, as outlined by his theory of 'doux commerce' (gentle commerce) He argues that, for a trade to be successful, there has to be a modicum of honesty, tolerance over differences and, most of all, a willingness to work together.

The conclusion he draws is the economic actors are thus less likely to take (irrational) steps which may jeopardise that relationship, and any such step taken would be mutually detrimental to all parties. Proponents of the view, who believe in the commercial peace theory, argue an increase in trade means there are more stakeholders in the situation, incentivising more groups to lobby against conflict, with the cost of warfare outweighing the potential gains from warfare. As economies become more intertwined and trade increases, the gains from warfare continue to diminish, with war becoming more uneconomical and an unwise choice. Moreover, trade partners have a selfish stake in the well-being of the other, to ensure their own self-interests are preserved.

The graph overleaf demonstrates the relationship between the occurrence of conflicts, and openness to trade Evidently from the graph, we can see there is a clear negative correlation between trade and conflict. As international trade openness increases, the occurrence of conflict decreases.

So how can international trade be maximised?

The first question to answer is how each country maximises their own output, which can then then be traded internationally This matter has been contentious, and a multitude of theories have emerged to answer this question. Adam Smith, the widely heralded ‘father of capitalism’ proposed countries should focus on specialising in certain goods, using the availability of a particular natural resource to their advantage, and divide labour to ensure products were produced as efficiently and economically as possible, keeping prices low He then believed countries should exchange goods between one another which they specialised in. Whilst in principle this sounds like a good idea, it is oblivious to the fact the production of some goods will be more profitable than others causing inequality, and total interdependence makes the global economy extremely prone to externalities. Another theory was the national competition theory This theory stated that national competitiveness in a particular industry will depend upon the environment that industry is getting in the home country The main source of innovation and up-gradation for that industry is basically the environment in which they operate which helps countries in getting a national competitive advantage, relative to other countries, and the sheer amount of competition would force prices down, and ensure maximum quality of goods. The problem is if the market becomes too saturated, there will be a point where potential manufacturers do not choose to enter the market, eventually reducing competition.

The second factor to consider is obstacles standing in the way of maximising international trade currently. These largely are political and social aspects. The first hurdle is the government itself. Many businesses and corporations are put off doing business with countries with volatile and unpredictable governments, due to the lack of stability and security required for businesses to run well. Businesses also may view foreign legal systems and paperwork as unfriendly, especially MSME’s, who lack the resources to seek counsel. Undertaking dispute resolution procedures, attaining correct licensing and settling financial payments abroad, when combined with the usual financial risks within a domestic market, may make it illogical for companies to trade and invest abroad. Economists like Von Hayek believed an interventionist approach by the government hinders and hampers the ability of international trade to occur naturally, and thought the biggest problem in the market was the government. One radical approach is to roll back on government influence, and encourage them to adopt a laissez-faire standing, as many right-wing economists believe the government should do Right wing thinkers also believe that all governments should do away with protectionist policies, which are visible through tariffs, quotas and embargoes, and subsidies, which they argue give an unfair competitive advantage to certain businesses. Quotas can curtail the amount of a good imported, limiting the size of trade

Finally, there are also monetary barriers to consider These include government approval for securing foreign exchange, which is more frequent amongst less stable economies. This is when all foreign exchange transactions must be approved by the central bank. Thus, importers who want to buy foreign goods must apply for an exchange permit which is permission to exchange an amount of local currency for foreign currency, adding a layer of unwanted bureaucracy, and providing an opportunity for government overreach. Another monetary barrier is blocked currency, which is used as a political weapon in response to a difficult balance of payments situation. The blockage is accomplished by refusing to allow importers to exchange their national currency for the seller’s currency

As discussed, trade is a viable route to achieve and sustain peace, with the added benefit of reaping economic rewards for the parties involved. The question of how to maximise trade is a completely different one, and given competing economic and political ideologies, along with the lack of consensus has made it a difficult one to answer. What’s certain is globalisation and increased international trade provides new opportunities not previously available to us, invariably playing a large part in development, and help preserving peace around the world

Manav Mashru