On free and fair trade

The distinguished English writer of the 20th century W. Somerset Maughan in his book The Summing Up said among other things that he had come across men who had brought prosperity to big companies but that in anything not concerned with their business, they lacked even common sense.

Whenever I read this, I try to think how much it applied to President Donald Trump of United States (US). Not only is he a billionaire in dollars, but he also has written books on how to become rich. Now as the chief executive of US, his motto is America first. He is keenly engaged in extricating the US from international agreements which do not in his opinion serve American interests.

Nationalism in which a politician says the interest of his country must come first is nothing new.

Even more eloquent was the British Prime Minister of the 19th century Viscount Palmerstone who said Britain has no permanent friends and no permanent enemies, she only has got permanent interests.

Trump wants America to isolate itself from those countries that economically get from it more than it gets from them. President Emmanuel Macron of France addressed the American Congress recently pleading that the US should retain its relationship with its allies and not isolate itself.

Memory of an individual can be short. But experiences of the past have been well documented. The economic depression which started in the US with the stock market collapse of 1929 affected the whole world. In Germany, it resulted in the rise of Adolf Hitler and Nazis. Thereafter, each country practised what has been called begger thy neighbour, raising high tariffs against imports and using non-tariff barriers against other countries.

Trade shrunk drastically, every country became poor. The Bretton Woods institutions, International Monetary Fund and World Bank, were invented specifically to encourage economic cooperation between nations so was the World Trade Organisation.

If the US puts high tariffs against other nations, the latter will retaliate and the world will be heading for new depressions. Free trade should be supplemented by fair trade as well as give and take between trading partners.

The theory of international trade says nations and their people benefit through trade and it should be encouraged by free movement of merchandise. But just as in the domestic market, free competition in markets has been tampered with by monopolists.

They subsidise their exports, uses non-tariffs barriers to keep own imports while paying lip service to free trade. As a result, their exports regularly outperform the exports of other countries. While their reserve currency continues to balloon, that of their main trading partner continues to dwindle.

A country whose reserves keep on diminishing must worry how it will import very essential goods when its reserves have completely vanished. For example, how does such a country obtain the drugs it needs to overcome an epidemic which has just occurred or how does it get in food from other countries to save the lives of people during a famine.

Trade whether internal or international does not completely obey the law of demand and supply. There is some management intervention.

Organisers of economic groupings in Africa tend to use terms loosely. What is only a free trade area they call it a common market. In the history of regional economic groups we notice three or four stages.

First is a free trade where several countries agree to reduce tariffs on each other’s exports. But each country is free to erect a different tariff if any against third countries.

The second stage is the customs union in which all member countries agree not only to free trade between them but to erect same level of tariff against third countries.

The third stage is the common market where apart from a customs union, there are regulations on labour movement, investments and commercial laws in general.

The African common market protocol which was signed in Kigali, Rwanda recently will take time to put into practice.