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UNDERSTANDING INTERNATIONAL TRADE

By DARLINGTON CHILUBA

ONE of the most interesting words in the field and study of International Relations and Trade is “Autarky” (or Autarchy). It basically means being independent of others (as a nation) politically and economically where possible. 

It confronts the principle that dependency can be equivalent to weakness in the community of states; but also admits that reliance on others is inevitable because no state is endowed with all the resources it needs to survive.

If it holds true, that trade among nations is inevitable, then nations will form strategic trade alliances among themselves to ensure their mutual survival. Such strategic alliances will generally ensure that trade is uninterrupted, and that crucial resources and trade routes are protected. 

Dominant nations are likely to determine the terms of trade because they would have developed global security structures that enable them to trade across the globe and introduce smaller nations into the trade matrix. 

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The balance of power in such relationships is typically with the dominant nations because they create demand which in turn creates income for smaller nations. By default, they can withhold money or dampen demand. 

This means some trade will be voluntary – with willing participants – and other trade will be involuntary but necessary – where the market is controlled by the buyer.

Buyer controlled markets can either be private or public. The London Metal Exchange (LME) is such an example. They determine the world price of commodities like copper and influence demand for that commodity largely through speculation and bargaining. 

Western markets also trade the value of national economies – such as Zambia’s – through financial instruments like Eurobonds that ultimately affect the living standards of nations being traded, positively or negatively. 

Such institutions like the LME are entrenched, protected and regulated by the policies of their host or home nations because advantages of their existence accrue to the host nations in most cases. One could propose that this structure resembles involuntary trade because the nation with the resource is not in control of the market or price of their resources.

In other markets, it is the seller that determines the commodity price and the best example is the Organisation of the Petroleum Exporting Countries (OPEC). This is one of the most powerful cartels in the world with over 80 percent of the global oil reserves and the power to interrupt global trade. 

This group of sovereign states understood the value of their commodity and defined the security and financial structure of trade on their terms. By withholding production in the 1970s, they not only caused global shortage of oil, and near collapse of some economies which went into soaring debt, but they ensured that the balance of power in the trade of oil was theirs. The world understood OPEC’s collective power.

The difference between OPEC and the LME is that OPEC was formed by sovereign states while the LME is a creation of market forces (or commercial power). The similarity is that they both function under the principle of protecting their terms of trade. 

The way to understand trade is to first reason that it relates to the survival of nations (which include entrenched financial structures and global markets). 

Secondly, that survival is not optional and cannot be by permission of another country. Thirdly that because survival is paramount, each country defines its terms of survival first, before worrying about other nations.

Once we agree that survival is intrinsic to trade, we can inform that autarchy and isolation are not the same thing. Autarchy speaks to calculated alliances while isolation is clearly suicidal. 

Even countries that appear isolated such as North Korea, Myanmar and Cuba to some degree, have strategic trade with the eastern bloc, China and Russia mostly who offer them some form of security. 

Regional trade blocs such as the Southern African Development Community, North American Free Trade Agreement, Association of Southeast Asian Nations and others all point to the avoidance of isolation in international relations and trade

In addition, inter-governmental bodies like The Group of Seven, BRICS (an association of Brazil, Russia, India, China, and South Africa) and Organisation for Economic Co-operation and Development all aim at controlling the terms of international trade in groups, than as single nations.

The European Union is perhaps the most advanced trade block with a central bank and single currency.

What does all this mean about trade? Firstly, that autarky actually entails strategic independence or interdependence. Further, that diplomatic or international relations cannot exist in isolation to trade and politics must be viewed from this prism to avoid making uncalculated decisions. 

To continue to view politics as independent of trade and finance in international relations is a grave error whose consequences may be dire for the survival of the nation.

Ends.

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