Import, Export, or Domestic Policy?

 Since the creation of the monetary system nations have executed imports and exports to trade goods. We have seen countries surge in growth as their exports exceeded their imports (Japan), we have seen countries falter as they continuously import more goods than they export (Unites States of America), and we have seen nations refuse to join any form of global trade simply surviving on their own domestic production (North Korea). With all these situations we witness importing, exporting, and domestic consumption, but which is best, and for what country? To answer this question we must define some key terms that relate to global trade, and to the benefits and drawbacks each country experiences.

Less-Developed Countries (LDCs): Do not have advanced technologies that can lower production costs, a well-developed infrastructure that can lower transportation costs, or institutions that lower transaction costs or make investments particularly safe.

Export-Oriented Economy: An economy based largely on the income incurred by exports more than any domestic consumption.

World Trade Organization (WTO): The successor organization to the General Agreement on Trade and Tariffs (GATT) that seeks liberalization of international trade and investment and generally promotes globalization.

Import-Substituting Industrialization (ISI): An economic theory employed by developing or emerging market nations that wish to increase their self-sufficiency and decrease their dependency on developed countries. Implementation of the theory focuses on protection and incubation of domestic infant industries so they may emerge to compete with imported goods and make the local economy more self-sufficient.

 Now that we have defined the key terms relating to global trade, and the benefits and drawbacks towards different countries, we may now begin to delve into the exact reasons as to why there is so much debate about which system works best. Let’s begin with the drawbacks of an export-oriented economic development path for LDCs. There are always benefits and drawbacks to each system, the trick is to develop the most logical system in which the majority benefit and any minority that experience drawbacks can be compensated accordingly. For an LDC to develop an export-oriented economic policy there are many drawbacks, one being that if the LDC does not have domestic infrastructure and a strong domestic economy with proper policies and regulations, the export-oriented economic policy will wreak havoc on the domestic market, as the LDC designates the majority of its ecological resources to exporting the goods in return for more competitive global markets. This creates a slew of problems domestically for the LDC, as citizens are faced with higher prices, because of the shortage of goods, the income that is received from the exported goods is reinvested into the exporting chain to increase production, and only a minority of the LDC’s population actually benefits from the subsequent revenue streams.

 An alternative to this economic policy, is one that provides slower growth accommodated with domestic economic security, and provides for domestic development of infrastructure, institutions, and other essential elements imperative of a prosperous economy. This economic policy is known as, barter trade, and has been used since the dawn of the human species. This concept of barter trade provides for LDCs that are beginning to enter the global market to trade (import and export) with other counties, to all-the-while operate on a balanced current account. This policy provides for slow economic growth, but immediate economic development, as the basic necessities for a society are met in trade of food, infrastructure supplies, and other goods that will promote prosperity. This policy is based completely on a long-term development plan, that does not consider short-term growth important. It could be considered a policy that fits between that of export-oriented economic policy and import-substituting industrialization, both of which implement an extreme of either importing goods or exporting goods, neither of which view long-term development as an important issue. But just like any system it has benefits and drawbacks, the largest drawback being that with bartering you can only supply your domestic market with so much of imported goods. This suggests that if an imported good is imperative to standard-of-living of the domestic population, but you can only acquire so much of it the population will suffer, because with barter trade a balanced current account must be kept at all times -- meaning that there is no trade surplus or deficit allowed. This drawback may result in a lower standard-of-living while the barter between the goods is adjusted to include the larger population, but it can also be considered an indicator good regarding the overshoot level of population in relation to the necessary good, suggesting the implementation of citizen approved population control parameters.

 No system is perfect as we have witnessed throughout history, but logically adjusting systems as soon as possible to avoid oscillated delays is the best way to naturally adjust to incorporate the shifts in the system. Reform is continuously necessary within a system, and finding an equilibrium within the system can prove to be improbable, but not impossible. Consider the many systems within our complicated world, many of which have ceased to experience reform since their creations, resulting in many problems now surfacing as a result of the oscillated delays we did not, and could not register due to our mis-educated ignorance.

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Onward,

Hayden van Andel