Trade is an exchange between parties towards a mutually beneficial end; and trade generally occurs when one or more parties have a surplus of something, or needs something desperately enough to part with what he already has. For example, in the near future, once all potential hydel projects and Thar coal reserves have been commercially developed by the government, Pakistan will have sufficient surplus energy to export to India, another reason for granting MFN to the latter; currently however, the nation is paying through its nose for energy, the proverbial pound of flesh.
International trade is trade between parties across national borders, as in the above concocted example; Pakistan exporting energy to next door not so friendly neighbour will qualify as international trade. And this is the funny thing about international trade, a country can be at war with the other country, but can still import films from the other country and play them with a lot of fanfare in domestic cinemas. America can import oil from the Middle East and still have no qualms about bombing it to submission or oblivion. The Arab world, under every conceivable scenario, is fully conversant with the causes behind and the identity of those responsible for the turmoil in their land, but they still invest their petrodollars, and spend their vacations, in the West. This incongruity is one of the reasons, there are many others, that Simpleton has serious reservations about those who wrote the theory on international free trade; they were either cuckoo or sadistic.
Note: those who never wanted to learn about international trade, mostly to avoid debates with fools, are encouraged to send queries on email at [email protected] for a simple down to earth response via the handbook. While it is generally best not to get into an argument with a fool mostly because it's impossible to beat their stubborn illogical construct, sometimes there is that urge to bash dumb heads, and hence it is best to be prepared.
The history of trade is as old as mankind and while some may be better than others, trading is innate in human nature; hence, no need to go that far into history, let's start from the fateful time when international trade became free; as free as the common man in a democracy.
Just a few decades ago, debates on free trade were avoided like the plague by those very theorists and nations who today passionately and vigorously propagate its apparent benefits. Back in those days, the world was ruled by imperial powers that ferociously protected their manufacture through heavy tariffs on imports, and at the same time ensured that trade with their colonies, who were not allowed to trade with the outside world, always resulted in a surplus for the respective European Empire.
Technically, in those days arms length trade occurred between the imperial powers only, and was subject to prohibitive trade barriers, a policy based upon the old mercantilist theory which required that the bullion must come home. In those days, all trade was paid by gold, the international currency, which meant that in case of a trade deficit, gold left the state coffers, which every government loathed. Hence all imperial powers resisted any trade which could result in a deficit for their owned part of the world.
The problem with that theory was that everyone, all the western powers, could not have a trade surplus, somebody had to have a deficit to balance global trade. Since there was no one else to trade with, recall that the rest of the world were colonies, war to control global resources and ensure that the bullion came home, was but a natural outcome. Even back then there were economists who had theories about the inflationary impact of gold coming home, but who cared, gold was gold.
After the World War II, things changed, the imperial powers perforce freed the colonies, who thenceforth continued with the trade policies that had been taught to them by their masters, stringent trade barriers. Soon the developed nations, a fresh more palatable identity assumed by the imperial powers while at the same time dubbing the former colonies as the third world, were faced with the age old problem, a trade surplus had to be balanced by a trade deficit. The only workable methodology was to once again shift the deficit towards the third world.
However, gold was the problem, firstly there was not enough of it and secondly gold itself was a tangible commodity which trading nations could relate too and hence were reluctant to part with, in case of a deficit. To understand this, note that it is much easier to spend via a credit card than in cash, although paper money is itself an illusion. So out went the gold standard and dollar became the international currency. This was coupled with multiple financial gimmickries which even the best of the best can still not understand; refer to Simpleton's handbook on banking and on monetary policy, coming shortly.
The illusion was however still not complete, hence their economists came up with a brilliant theory baptized as the Comparative Advantage, which in essence meant that every nation should only produce what they are good at, forever. If Pakistan can only produce raw materials touch luck. So why is that a problem, simply how much cotton equals a smart phone? Finally, the double jeopardy, global institutions charged with the responsibility of maintaining global financial stability as deemed fit by the developed nation; the imperialist circle was finally complete.
So how does international trade work now? Same as before, at all times trade deficit has to be balanced, either by paying in dollars, the international currency, or through a loan, again in dollars. The illusion works, since billions of dollars deficit is waived away with a stroke of a pen, after all its not that gold is leaving the country. Unfortunately, it does! When the dollar reserves deplete, Third World nations borrow in dollar and when the y can't borrow anymore, they go bankrupt. And this is the perfect time for IMF to come in and impose its structural adjustment program, forcing the developed nation to do more and to ensure that all the dollars borrowed are paid at all cost; gold does leave the country.
At this point the critics will point out China; this topic because of its multiple dimensions deserves a complete chapter. In brief, China spends all its dollars in America and China would be naive if it believes it can physically move assets it buys in the west, back home; possessions is ownership and guess what, land mafia exists at every level!
Dear reader, all this does not mean that international trade is completely abominable, after all without international trade, Pakistani's would only have cotton suits and no iPhone. Although there are those who believe that minus iPhones, Pakistani youth might do something productive rather than texting on social media all the time. But seriously, Pakistan needs to trade only if to import energy, necessary to keep the country running, recall why nation's trade as explained at the beginning. What however needs to be understood is that unbridled trade will have consequences. Continued deficits will have to be paid for in the future definitely, and gold will flow out. And, what happens when there is no more gold? Kindly refer to Simpleton's Handbook on Privatisation to be issued shortly.
(The writer is a chartered accountant based in Islamabad)
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