Why we can’t unscramble the egg of global trade

Self-sufficiency and even reduced trade will lead to a much lower standard of living

Roslyn KuninThree major factors are drastically changing the world: climate change, the pandemic and, most recently, the war in Ukraine.

Much of the conventional wisdom that we learned in school and that still governs many political decisions seems no longer to apply. COVID-19, climate change and attempted conquests appear to give more credence to the often quoted, but less often true expression, “This time is different.”

Globalization is often put forward as one of the casualties of our current circumstances.

Since the 1950s, the world has become more integrated. The major powers have largely been at peace. Barriers to trade have been reduced. Changes to technology and communications demonstrated that it really is a small world after all.

Globalization, the resulting freer trade in goods and services, and the ability to spread manufacturing and other activities around the world led to lower costs, more variety and higher standards of living. As a result, over one billion people worldwide have been lifted out of extreme poverty in this century.

But globalization seems to have fallen out of favour. The pandemic has dampened enthusiasm for moving people, whether workers, migrants or tourists, and has disrupted transportation and supply chains, which in turn impact production. Other industrial activities have been hurt by lockdowns. More people have been pushed into poverty.

War and the resulting sanctions curtail the availability of essential items like food and energy, and much else besides.

And many environmentalists believe we should all become more locally self-sufficient for the sake of the planet.

One argument for self-sufficiency is that your economy wouldn’t then depend on outside sources for essentials or even nice-to-haves. With domestic sources for your needs, you would no longer have to worry about war, lockdowns or other factors cutting you off from your suppliers.

The problem is that closed economies are still dependent on one supplier: themselves. They continue to face risks if, for example, bad weather limits their food production.

Not all countries are in a position to easily become self-sufficient. Canada would have trouble producing fruit and vegetables through most of the year, to say nothing of tea or coffee. Singapore, an extreme example, can’t feed itself and even has to import water, but it produces many goods and services that other countries are eager to take in trade.

Self-sufficiency and even reduced trade imply a much lower standard of living. North Korea is an example of a closed economy where hunger is never far away for most of its people.

Canada had a much more protected economy before freer trade with the United States was implemented in the 1990s. Older Canadians recall looking forward to shopping trips south of the border because of the wider variety and lower prices available in the States.

Most of us are very happy that our standard of living has advanced beyond basics like food and fuel. We appreciate modern conveniences like smartphones and green advancements like electric cars. These require specialized inputs such as rare earths that are not uniformly or widely distributed around the world, providing another good reason for open economies and trade.

The global energy map faces dramatic revisions by Rashid Husain Syed
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What’s wrong with globalization and how to fix it by Robert McGarvey
Fixing it won’t be easy

Countries were much more self-sufficient before trade, transportation, and technology allowed many people’s lives to move above the subsistence level. The price for better and more secure livelihoods was greater interdependence as people could tap into resources formerly beyond their reach.

Industrial activities became more and more interconnected across nations, weaving consumers and producers into an ever more complex international web.

To try to separate out the bits or become nationally self-sufficient is like trying to unscramble an egg.

Problems like supply disruptions and sanctions are real. A way must be found to ensure that crucial inputs are available when needed. But trying to produce everything domestically would be very costly and, in many cases, impossible.

A better way is to ensure that you always have more than one supplier for all your needs. For example, if Europe had appropriate infrastructure in place, it could meet its energy needs from North America and not be dependent on Russia.

Relying on a single supplier is dangerous, whether that supplier is domestic or foreign. Having many sources for your needs, domestic or international, is real globalization, and that’s good.

Troy Media columnist Roslyn Kunin is a consulting economist and speaker.  For interview requests, click here.


The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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