Just Sociology

Why Trade Doesn’t Help Poor Countries: Examining Biases and Debt Pressure

Globalization has triggered an increase in international trade, and proponents have suggested that it can lead to economic growth and development. However, the benefits of trade have been highly debated, with many experts arguing that it can lead to exploitation and poverty in the developing world.

This article will explore the reasons why trade does not help poor countries develop and provide specific examples that illustrate how low-value exports do not generate enough income for development.

Dependency on low-value primary products for export earnings

Many poor countries rely on primary commodity exports to generate revenue. For instance, coffee exports are critical for Ethiopia and some countries in West Africa, including the Ivory Coast and Kenya.

However, the value of these commodities has declined over the years, leading to a decline in the farmers’ income, as well as the countries’ overall economic growth. Countries that rely on primary commodity exports face increased risks of economic shocks due to fluctuations in global prices.

This can lead to instability and poor-quality healthcare and education services.

Value-added by rich countries to primary commodities

Primary commodities like coffee, cocoa, and tea are worth considerably more when processed and made into branded products sold in supermarkets in rich countries. The majority of the value generated through processing and branding, including profits, remain in the rich countries that process these commodities.

Consequently, farmers in developing countries, who do not have the resources and skills to process or brand these products, receive low prices. This perpetuates the cycle of poverty and underdevelopment in the developing world while enriching economies in the West.

Biased terms of trade

Trade policies can favor and protect rich countries at the expense of poor ones. Tariffs, quotas, subsidies, and overproduction policies by rich countries can prevent poor countries from exporting to rich countries or competing with the rich country’s products.

Additionally, cheap goods may be dumped in poor countries, undermining the growth of local industries. This creates a bias against poor countries in the global market, leading to lower prices for their products and poor economic growth.

Pressure to export to clear debts

In their quest for economic growth, poor countries often take out loans from organizations such as the World Bank. The loans come with stringent repayment schedules, forcing poor countries to export their primary commodities to repay their debts.

This pressure to export can trigger social violence and create a cycle of immiserating trade, which is characterized by the export of primary products at low prices, keeping poor countries in a perpetual cycle of dependency. Movie “Black Gold” on exploitation of coffee farmers in Ethiopia

One example of how low-value exports can be exploitative is the documentary “Black Gold.” It exposes the exploitation of Ethiopian coffee farmers who work for long hours while earning meager wages, while the processors of this coffee earn high profits by branding and marketing the product in Europe and America.

The film shows how economic inequality created through the global coffee supply chain forces farmers into poverty and could spark social strife and conflict. Stacey Dooley’s “Kids with Machetes” on low wages paid to cocoa farmers in The Ivory Coast

An example of the low wages paid to cocoa farmers in the Ivory Coast is illustrated in Stacey Dooley’s “Kids with Machetes.” Cocoa farmers earn meager wages, which are not enough to support their families or invest in their farms.

The film highlights the link between cocoa production and child labor and illustrates how the global chocolate industry has not delivered fully on fair trade pledges to support the livelihoods of producers. Conclusion:

In conclusion, the complexities of global trade present several challenges that prevent poor countries from developing.

Dependency on low-value primary products, a lack of value addition by rich countries, biased trade policies, and pressure to export to repay debts are some of the ways in which developing countries can be exploited in the global trade market. The film “Black Gold” and the documentary “Kids with Machetes” exemplify the exploitative nature of low-value exports and highlight how trade policies need to be reformed to ensure fair prices and support for farmers in developing countries.

Expansion:

Biases in the terms of trade

Trade policies can be designed to favor rich countries at the expense of poor ones. Tariffs, quotas, subsidies, and overproduction policies are common ways that rich countries can protect their domestic industries while making it difficult for poor countries to compete in the global market.

In this section, we will examine some of the biases in the terms of trade that disadvantage poor countries.

Western nations imposition of tariffs and quotas

Tariffs and quotas are import taxes and restrictions, respectively. They are commonly used by developed countries to protect their domestic markets from foreign competition.

For instance, rich countries may impose tariffs on imports of textiles and apparel from poor countries, leading to a decline in textile exports from these countries. Tariffs on agricultural exports, such as coffee and sugar, can have a devastating effect on the economies of developing countries that rely on these crops as a primary source of income.

Western governments subsidies on their own industries

Rich countries use subsidies to overproduce their own commodities, which can lead to dumping of cheap goods in poor countries. For example, the European Union and the United States provided subsidies to their sugar industries, which resulted in overproduction and the dumping of cheap sugar on the global market.

This had a devastating effect on the economies of countries like Kenya, which rely heavily on sugar exports for revenue. The dumping of cheap goods in developing countries undermines the growth of local industries and can have negative consequences for producers in these countries.

This creates inequality in the global market, with rich countries able to sell subsidized products at low prices while producers in the developing world receive lower prices for their products.

Negative effects of free trade agreements (FTAs)

Free trade agreements (FTAs) are designed to liberalize trade by removing tariffs and other barriers to trade. However, these agreements can have negative consequences for developing countries as they may struggle to compete with the products of rich countries.

One example is the Free Trade Agreement between India and the United States, which allowed American poultry and dairy products to flood the Indian market, competing with local producers. These products were sold in supermarkets chains, which neglected the local producers.

This resulted in a decline in demand for local products, which had far-reaching consequences for producers and workers in the country. The impact of FTAs on developing countries is a controversial issue, with some experts arguing that FTAs provide opportunities for developing countries to participate in the global market and reduce poverty, while others suggest that FTAs can have negative impacts on local economies.

Pressure on poor countries to export to clear debts

Developing countries often take out loans from international organizations like the World Bank to finance their development projects. These loans come with stringent repayment schedules, which require countries to generate enough revenue to repay their debt.

Developing countries can find themselves under tremendous pressure to export their primary commodities, which are often their only sources of income, to repay these debts.

World Banks view of loans and debt as a normal part of development

The World Bank has long held the view that loans and debt are a normal part of development. The organization provides loans to countries to finance their development, but these often come with conditions that require countries to implement economic policies that suit the World Banks agenda.

These economic policies can have negative consequences for developing countries, particularly when they include trade liberalization and structural adjustment programs that can lead to the reduction of subsidies or deregulation of industries.

Constantly escalating pressure on farmers and workers in the developing world to produce more for less

The pressure to export can create a situation where farmers and workers in developing countries are constantly forced to produce more for less. This leads to immiserating trade, where primary products are exported at low prices, which keeps poor countries in a perpetual cycle of dependency.

The pressure to compete in the global market can also lead to social violence, with workers and farmers engaging in violent protests against the state or private companies. Conclusion:

The biases inherent in the global trade system and the pressure on poor countries to export their primary commodities to repay debts are some of the key reasons why trade does not help poor countries develop.

Tariffs, quotas, subsidies, and overproduction policies can all work against developing countries, undermining their ability to compete in the global market. FTAs can also have negative consequences for local economies, creating conditions that perpetuate poverty and inequality.

Ultimately, addressing these issues requires the implementation of policies that promote fair trade and sustainable development, which can empower developing countries to participate in the global market and spur their economic growth. In conclusion, this article has demonstrated that trade often fails to help poor countries develop due to their dependence on low-value primary products for export earnings, biased trade policies, and pressure to export to repay debts.

It has also highlighted examples that illustrate how these factors can lead to poverty, exploitation, and social violence in the developing world. Addressing these issues requires the implementation of policies that promote fair trade and sustainable development.

FAQs:

1. What are tariffs and quotas?

Tariffs and quotas are import taxes and restrictions, respectively, used by developed countries to protect their domestic markets from foreign competition. 2.

How does the dumping of cheap goods in developing countries affect local producers? The dumping of cheap goods in developing countries can undermine the growth of local industries and can have negative consequences for producers in these countries.

3. What are the negative impacts of free trade agreements on developing countries?

Free trade agreements can have negative consequences for developing countries as they may struggle to compete with the products of rich countries, leading to a decline in demand for local products, which has far-reaching consequences for producers and workers in the country. 4.

Why do poor countries face pressure to export their primary commodities to repay debt? Poor countries often take out loans from international organizations like the World Bank to finance their development projects.

These loans come with stringent repayment schedules, which require countries to generate enough revenue to repay their debt, leading to pressure on farmers and workers in developing countries to constantly produce more for less. 5.

What are the consequences of trade policies that favor rich countries over developing countries? Trade policies that favor rich countries over developing countries often lead to poverty, exploitation, and social violence in the developing world, and they perpetuate a cycle of dependency for these countries.

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