Trade

7 May 2018

Container ship leaving Bay Area by Derell Licht on Flickr

“In the morning we drink coffee provided for us by a South American, or tea by a Chinese, or cocoa by a West African. Before we leave for our jobs we’re already indebted to more than half the world.”
Martin Luther King, Jr

Trade is all about buying and selling the things we want and need, from food and clothes to banking and tourism. Due to the global nature of trade the choices we make as consumers can directly affect people all over the world.

Why teach about trade?

Focusing on trade means we can look at where our food comes from, how the things are made, or who makes money from trade and why. You can also support students’ development as responsible global citizens by introducing them to issues of fairness, equity and social justice. Even young children can quickly grasp the value of money and can play trading games.

Students can build their understanding of global interdependence, examine the effects of power imbalances in trade, or reflect on how the interplay of politics and the market mean trade is neither ‘free’ nor ‘fair’. Using critical thinking skills students can evaluate the ethics in trade and make up their own minds about how global trade should work.

Curriculum links

Geography:

  • Key Stage 2: ‘Economic activity including trade links’
  • Key Stage 3: ‘Economic activity in the primary, secondary, tertiary and quaternary sectors’

History:

  • Key Stage 3: ‘Ideas, political power, industry and empire: Britain, 1745-1901’

Citizenship:

  • Key Stage 4: ‘different ways in which a citizen can contribute to … their community’

PSHE:

  • Key Stages 1-4: “Living in the wider world” – allowing students to understand how they are part of the global community and that our choices have an impact on others.

Learning about the issues around international trade can also lead into other topics such as sustainability (eg examining the notion of sustainable production and consumption patterns, or the complex issue of food miles), economy, globalisation, tourism, values and others.

Background

People have been trading things they make for thousands of years, using their skills and resources to swap, barter and exchange. Trading is more than the accumulation of wealth, it’s about a transaction where both the seller and buyer benefit. This funny 7-minute clip by Morgan Spurlock tries to explain:

These days, trade is global, with complex supply chains. The components and ingredients for our everyday purchases come from many countries, are transported across the world to be developed and refined, and transported again to market. A great example is the journey our clothes take. Useful resources for exploring the journey of clothes are:

Trade is also dominated by the largest economies and countries – over half of the largest 150 economic entities in the world are corporations. By the start of the 21st century, 500 multinational corporations accounted for nearly 70% of worldwide trade.

What is free trade?

Our modern global trading system has its basis in the philosophies of economists such as Adam Smith, whose 1776 work The Wealth of Nations looked at how people and nations were trading at the beginning of the industrial revolution in the UK. His theories focus on self-interest – people supplying their labour (time; skills) and capital (goods; money) to people who demanded them – to make money. Supply and demand regulate prices – put simply, that’s why in-season vegetables are often cheaper – there are more of them around!

Smith’s ‘free trade’ market was a theoretical model based on perfect conditions for trade that rarely if ever exist, and the trade system in the 19th and 20th centuries saw a few richer countries – including Britain, France, Spain and the US – exploiting the labour and natural resources of many other countries in Africa, Latin America and Asia through slavery and colonialism. It’s certainly true that ‘free trade’ has given richer countries huge advantages in global trade.

Browse through teaching resources on slavery and colonialism.

Who decides how we trade?

Since 1945 some key global institutions such as the Word Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO) have been formed to help countries trade with each other better. Although they all recognise that some countries have an unfair advantage over others because of historical factors or natural resources, they still endorse ‘free trade’ as the best way for countries to develop.

Pile of banknotesThe World Bank aims to reduce poverty by providing loans and grants to poorer countries to help with education, healthcare or other areas. It has nearly 200 members but most voting power sits with the richest countries. The IMF lends money to governments in difficulty – such as not being able to make enough money from exports or taxes to pay for teachers, doctors and more. The loans are designed to help countries continue to import goods from abroad during financial crisis. The WTO deals with the rules of trade between nations. At its heart are WTO agreements, negotiated and signed by most governments. The goal is to help producers, exporters, and importers conduct their business.

Countries and groups of countries such as the EU also get together to agree how they will trade. While it’s true that trade can benefit everyone involved in it, all governments have a vested interest in making sure businesses and people in their own countries can get the most out of trade. Because some countries are richer than others, this of course creates and maintains a huge power imbalance, which benefits rich over poor, and huge multinational companies over smaller ones.

How do these organisations affect trade?

Rich-country governments, the WTO, IMF and World Bank may promote ‘free trade’, but they have all been criticised for requiring poorer countries to open up their markets to imports from rich countries. The World Bank and IMF have often put conditions on loans, which make it harder for poorer countries to trade profitably. An example is the tariffs on processed goods that are levied on products entering the EU. Although raw products such as cocoa from Ghana can cross the border with few financial penalties, a chocolate bar imported into the EU faces much higher tariffs, meaning the chocolate would be far too expensive and no one would want to buy it. Consequently, local Ghanaian chocolate makers cannot add value to their produce by developing it into chocolate bars.

Loan conditions have also meant poorer countries cut education and health spending which has long-term effects on countries’ development.

How subsidies affect trade

The EU spends over $60billion in subsidies each year on farming, while the US spends about $20billion a year. This produces mountains of excess commodities of things like cereals and cotton. These goods are dumped on poorer markets at a much lower price than they can be produced locally, undermining the price of local produce. This dumping is possible because of international pressure on developing countries to open markets. In Ghana, it had the effect of sending rice farmers out of business because they couldn’t produce rice as cheaply as American farmers who were being subsidised.

This distortion of global trade costs developing countries about US$50 billion a year in potential lost agricultural exports – a sum roughly the equivalent of today’s level of development assistance.

The Luckiest nut in the world is an animation featuring an American peanut who sings about the difficulties faced by nuts from developing countries, all of whom suffer as world trade is liberalized, while the American peanut is protected by tariffs and heavily subsidized.

Although it’s a few years old, this film still helps students understand how ‘free market’ economics has driven many countries further into poverty.

View The Luckiest Nut in the World:

  • on YouTube (8 mins)
  • or on Vimeo (23 mins – goes into more detail)
Cotton plant
Cotton plant

So the subsidies paid by governments in developed countries mean the real benefits of trade are not felt by farmers in developing countries. In West Africa, where millions of farmers rely on growing cotton to feed their families, direct losses as a result of US and EU subsidies are estimated at $250m per year, according to Oxfam. The system pits a typical Malian producer, farming two hectares of cotton, who is lucky to gross $400 a year, against US farms that receive a subsidy of $250 per hectare. Oxfam calculates that removing US cotton subsidies would boost average household income in West Africa by up to 9% – enough to feed a million people.

An interesting role play or decision-making exercise you could do with students would be to explore whether a global ban on agricultural export subsidies is a good idea. It’s argued that it would help halt the over-production from rich countries and reduce the dumping of excess produce, allowing farmers in poorer countries to sell their produce within a fairer market and charge a price that would cover the cost of production as well as making a small profit.

What are trade agreements and how do they work?

Trade agreements are rules about tariffs, taxes and quotas on imports and exports between either two countries – bi-lateral agreements – or between a group of countries – multilateral agreements.
The EU, for instance, has complex trade agreements in place between member countries that promotes much freedom of movement of products, labour, and investment without taxes or quotes, for instance through the Common Agricultural Policy that regulates farming and production, subsidies and quotas for agricultural products.

One solution to promote fairer trade would be to remove trade barriers such as import taxes and quotas from poor to rich countries.

What is fair trade?

Image of cocoa worker with his crop © Fairtrade Foundation
Image of cocoa worker with his crop © Fairtrade Foundation

Fair trade is also an economic trading system – but it is an alternative to ‘free trade’. It is about a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the poorest countries. One practical example of how ‘fair trade’ principles can work in practice is through the FAIRTRADE Mark, where farmers get a guaranteed income for what they grow and extra funds to spend on community and agricultural projects.

Teaching resources

Find out more

 

The photo at the top of the page is ‘Container ship leaving Bay Area’ by Derell Licht on Flickr, and used under a Creative Commons Licence.

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