‘Nations benefit from trade’ is one of the basic principles of economics. This trade includes imports and exports out, of which exports are considered to bring in more foreign exchange and thus balance the current account deficit of the country. These premises lead to the conclusion that exporting countries are at advantage when it comes to the exchange of goods. No doubt, countries exporting agro-products, pharmaceuticals, engineering goods like India, China, Taiwan; Samsung giant’s origin country Korea, automobile hub Germany, the luxury queen France, the oil treasured middle east, and so on, are doing phenomenally well in the global market.
But in the long run, do they really benefit?
Comparative advantage and differences in opportunity costs are basis of specialization in production and trade. When each country specializes in production of the good in which it has comparative advantage, total output in the economy expands which can be thereby used to make them better off. But with the given environmental changes, depletion of resources, brain drain, immigration, cultural shifts, shift in political aspects and policies, etc., will a country have the comparative advantage in the production of the same commodity twenty-five years down the line, as it does today? Think about it.
For instance, the major market share in oil exports may not be with Saudi Arabia, it may not occupy the same position after a while, given the rapid depletion of its resources.
What if the countries your country is exporting to has a shift in its policies and banishes your products? The exporting country is badly hit in such a situation. The economy of this country is shaken leading to adverse effects on its economic, political and social aspects.
The best example in recent times is of U.S President Donald Trump’s ban on migrants of certain countries. Even though it’s a temporary ban, the trade of commodity i.e. human resource is hit. This shows how extremely dependent the exporting countries become on the importing countries. And dependency of this kind puts the exporting countries at constant threat, especially at times when other countries may follow suite and become conservative nations.
On the other hand, a higher level of production of export goods means lesser production of other required goods and hence more imports. This can lead to gradual elimination of domestic industries. Trade deficit may cause currency devaluation eventually leading to inflation in the exporting country. India is the most appropriate example here, while we are constantly pushing farmers to produce cash crops to boost exports, we’re falling short in the production of food grains.
To conclude, we can say that although exporting seems quite meritorious, it can prove to be hazardous in the longer run. It is essential to maintain a balance between the imports and exports and also to have efficient policies and alternatives in order to have a sustainable economy in the longer run.
By Prachi Mehta
Image Source:Expres.ua