January 19th, 2020

The destructive power of trade

A museum in the northern German city of Lübeck is running an exhibition called "Die Macht des Handels": The power of trade. Lübeck is a "Hansestadt" (Hanseatic city), meaning it was part of the Hanseatic League of cities which dominated trade in Northern Europe around the Late Middle Ages. These cities are very proud of their Hanseatic history and continue to champion trade as an important part of their culture and economy, which is understandable when you consider that these cities are only of any significance because of their ports, and they would be tiny, insignificant towns if they hadn't become centers of trade and commerce.

Despite this, the fact is that trade is not a magic secret to wealth and prosperity for all. In fact, trade really only benefits a very small group of people: The traders, the people who deal in goods. The problem with trade is that trade, in itself, does nothing: It is only the transfer of goods from one place to another. In most cases, the hard work is not shipping or selling products, but making products, and in most cases, the people who do the hard work of producing goods are the ones who benefit the least from the supply chain. Growing crops on farms is hard work, and so is manufacturing products in factories, but farm and factory workers remain among the lowest-paid people in the world, despite the fact that they work the hardest. Traders like this because it allows them to buy products from the places that pay workers the least, and sell those products to the places that pay the most. Trade benefits the people who work in trade enormously, but traders are the people who do the least work, because they do nothing more than take other people's work and sell it.

The results of international trade are damaging for both developing and developed countries: It harms developing countries because people there work much more than they would have to in order to satisfy local demand, because they're not just producing for their local communities, they're producing goods for the entire world, and yet they're getting paid what would be illegally low wages in the countries where those goods will actually be consumed. Meanwhile, international trade harms developed countries because it takes jobs away from people, since those jobs, of course, disappear to countries where workers can get paid less.

In places where trade is a key financial sector, this works to destroy local economies, because the only people making money are the traders. The only other people with jobs are dock workers, who are unskilled laborers who get paid minimum wage. Traders often say that anyone can benefit from trade by becoming a trader, but this is such an obviously untrue and disingenuous way of framing the picture: Not everyone in the world can be a trader; there have to be people who actually produce goods. It's similar to how people defend the loss of manufacturing and agricultural jobs by claiming that people who are becoming unemployed can simply learn to program computers and get jobs that way; again, not everyone in the world can be a computer programmer, and the information economy doesn't need billions of programmers anyway.

Trade destroys local economies because it starkly divides cities into haves, who are the people who work in international trade, and have-nots, which is everyone else. This is why Hamburg, by far the biggest port city in Germany, is also the most unequal of all cities in Germany: Statistically, Hamburg is one of the richest cities in Germany because it has one of the highest GDPs per capita, but if you actually take a walk through the streets of Hamburg, you'll see that it has more homeless people and beggars than any other city in Germany, including Berlin. This inequality is a direct result of trade: The people involved in trade make tons of money on imports and exports, but the industry does not afford job opportunities for anyone else, and so the rest of the people in the city settle into unemployment and poverty, and the city as a whole falls into decay. As by far the largest port city in Germany, this effect is more noticeable in Hamburg, but it is also prevalent in other historical Hanseatic cities like Lübeck, Bremen, and Rostock. Historically, it was also very visible in American cities that began mainly as ports, such as New York and San Francisco, and it's still highly visible today in major port cities in developing countries.

In 2014, then-President of the U.S. Barack Obama spoke at the U.S.-Africa Business Forum in Washington, D.C. and stated: "I want Africans buying more American products. I want Americans buying more African products." At the time, I commented on this and asked why Obama would want an outcome like this: What is the point of the two continents shipping products to each other? Rather than having people make things and then ship them to customers on the other side of the world, why not make products in the place where people will actually use them? It's environmentally damaging to ship products all over the world; emissions from freight ships are one of the biggest contributors to air pollution in port cities. This could be eliminated entirely if local producers sold to local customers instead of shipping their goods around the world. Later, in 2015, Obama spoke at the African Union Headquarters in Addis Ababa, Ethiopia and noted: "So many Africans have told me, we don't want just aid, we want trade that fuels progress." Here, again, we see abuse of the lowest classes for the sake of the wealthy: Does anyone really think that increased trade would bring economic benefits to most Africans? The only people who would benefit from that would be wealthy traders, people with shipping companies; increased global trade with Africa would only increase economic inequality in Africa by bringing money to the wealthiest people, while keeping it away from the poorest people, the ones who actually need help.

In general, if you want to make the world a more fair place, one of the best ways to do so is to eliminate international trade. This would prevent people in wealthier countries from exploiting workers in poor countries: Instead of offshoring the hardest work of all, developed countries would have to hire their own farm and factory workers, meaning that the people who do such work would actually earn a decent wage, and people in developing countries would stop being exploited by overseas businesses. Of course, people who make a living in trade don't want people to get a hold of this idea; after all, why would they want to get a real job when they can get rich from profiting off other people's work? That's the real power of trade: It is a destructive power, because trade destroys local economies and makes people dependent on international producers on the other side of the ocean. Rather than allowing people to support their own local communities, it forces people to buy and ship things from the other side of the globe. The destructive power of trade is something people need to realize so that it can be eliminated. Getting rid of global trade not only benefits people economically by lowering income inequality and creating local jobs, it's also better for the global environment because it cuts down on emissions. Eliminating trade is a win-win scenario for everyone. But don't expect people who live in Hanseatic cities to embrace this idea.