Trade

Trade, Aid and Exchange

 Spice trade
• The spice trade began in the Middle East over 4,000 years ago.
• Initially, the spice trade was conducted mostly by camel caravans
over land routes. The Silk Road was an important route
connecting Asia with the Mediterranean world, including North
Africa and Europe. Trade on the Silk Road was a significant factor
in the development of the great civilizations of China, India,
Egypt, Persia, Arabia, and Rome.
• With the discovery of America, the tastes of the old world
underwent a revolution. When Vasco da Gama discovered a sea
route to India, he started a race for spices, money and power.
Portugal turned into a world power overnight through da Gama's
discovery as most of the spice producing regions fell under his
control.
• Spanish, English and Dutch expeditions soon followed, and the
growing competition sparked bloody conflicts over control of the
spice trade. Wars over the Indonesian Spice Islands broke out
between expanding European nations and continued for about
200 years, between the 15th and 17th centuries.
• The United States began its entry into the world spice industry in
the 18th century, when American businessmen began their own
spice companies and started dealing directly with Asian growers
rather than the established European companies

• Many believe that Spice trade was the start of globalization

Impact of Spice trade
The Slave Trade
 The transatlantic slave trade
• Began in the middle of the fifteenth century when Portuguese
ships sailed down the West African coast. The intention was to
trade for gold and spices, but the voyagers found another even
more valuable commodity—human beings. Over time, the trade
in men and women replaced other commerce, and the slaves’
destination changed from Europe to the Americas.

• The first black men and women arrived in mainland North

America in the sixteenth century, often accompanying European
explorers.

• With the advent of the plantation in mainland North America, the

nature of slavery and then the slave trade changed. The
beginnings of plantation production—tobacco and rice in the in
the early eighteenth century—increased the level of violence,
exploitation, and brutality in these regions. Slaves worked
harder, propelling their owners to new, previously unimagined
heights of wealth and power
• Slavery was abolished in1835 in Britain and in 1863 in the US
Photograph of Peter the
slave
 The impact of the Atlantic slave trade on
Africa.
• Powerful Africans who engaged in slave dealing could make a
sizeable profit from the trade
• The period between the sixteenth and nineteenth centuries was a
time of economic stagnation for Africa

The impact of the Atlantic slave trade on the New

World.
• The use of black slaves played a crucial part in the
economic development of the New World

• Black slaves were especially important as a labour supply

for the “plantation” agriculture that developed in the New
World, first in Brazil, and later in the Caribbean and the
southern parts of North America. When plantations were
set up in the Americas, black slaves became the backbone
of the workforce.
• Undoubtedly the slave trade affected the British economy in a
number of ways. The British cotton mills, which became the
emblem of the “Industrial Revolution”, depended on cheap slave-
produced cotton from the New World; cotton would have been
more costly to obtain elsewhere. British consumers also
benefited from other cheap and plentiful slave-produced goods
such as sugar. The profits gained from the slave trade gave the
British economy an extra source of capital

• The long-term economic exploitation of millions of black slaves

was to have a profound effect on the New World’s history. Most
fundamentally, it produced deep social divides between the rich
white and poor black communities, the consequences of which
still haunt American societies now, many years after
emancipation.
What is Globalization?
In the broadest terms, globalization is the spread of products, services,
people, and activities across national borders and across cultures. On an
individual business level, this might be referred to as global or
overseas expansion..”
Globalization has become possible due to advancements in
technology and companies operating in multiple countries, such
companies are known as multinational and transnational.

What is Multinational (MNC)?

Multi means many and national means the state. Many states mean
that these types of companies operate in more than one country at
the same time. Multinational enterprise is strongly supported by the
emergence of free liberalism and free market concepts. A company
may start in one country, and may spread to other foreign countries,
expanding their investments. Thus, a national industry becomes a
multinational company.
The significance of this type of companies is that though it spreads to
many other countries, there will be a centralized management
system, and the main decisions will always be taken by the home
company.
What is Transnational (TNC)?
Transnational corporations are something similar to multinational
companies, but there is a small difference. Transnational corporations
also operate in many countries, and there isn’t a centralized
management system. These companies might start in one country,
and later on they might expand to other nations as well. However,
they do not have a home company to manage them and will start as
a new company. So, a transnational company does not have
subsidiaries.
Benefits of globalisation
1. Free trade is a way for countries to exchange goods and
resources. This means countries can specialise in producing goods
where they have a comparative advantage (this means they can
produce goods at a lower opportunity cost).
2. Free movement of labour
Increased labour migration gives advantages to both workers and
recipient countries. If a country experiences high unemployment,
there are increased opportunities to look for work elsewhere. This
process of labour migration also helps reduce geographical
inequality. This has been quite effective in the EU, with many Eastern
European workers migrating west.
3. Greater competition
Domestic monopolies used to be protected by a lack of competition.
However, globalisation means that firms face greater competition
from foreign firms.
4. Higher quality goods
As each nation concentrates on its own specialty industries, there is
far less ‘re-inventing the wheel’. For example, every country does not
need to waste its scarce resources producing its own version of the
smartphone when one can be imported from a country that
specializes in this product.
5. Sharing technology: For countries to be able to cooperate
globally, they must share similar technology and technological
infrastructure. The need for shared technology means that
technological advances quickly make their way around the world.

6. Sharing knowledge: Similarly, the need for a centralized base of

knowledge for cooperating countries to work from means
globalization results in a rapid transfer of knowledge. Scientific
advances made in Belgium can be in Japan with the touch of a
button.

7. Cross-Cultural Exchange
Not all the positive effects of globalization take place at the scale of
billions and trillions of dollars. Cross-cultural exchanges of ideas,
food, music, media, and language are just as valuable.
Individuals who travel around the world for business or leisure
and try different foods, listen to different music, read different books,
gain exposure to different media outlets, and learn to express
themselves, even poorly, in another language gain a broader
perspective on the world. Their new knowledge helps develop
stronger empathy and appreciation for people of other cultures.
Disadvantages/Limitations of globalization
1. Possible monopolization of multi-national companies
Large enterprises from developed countries may move into smaller
developing nations and take over the market. Their specialization
and efficiency in providing a particular good or service may mean
that local producers in a developing country are knocked out of the
market;

2. Environmental costs
One problem of globalisation is that it has increased the use of non-
renewable resources. It has also contributed to increased pollution
and global warming. Firms can also outsource production to where
environmental standards are less strict. However, arguably the
problem is not so much globalisation as a failure to set satisfactory
environmental standards.
3. Labour drain
Globalisation enables workers to move more freely. Therefore, some
countries find it difficult to hold onto their best-skilled workers, who
are attracted by higher wages elsewhere.
4. Less cultural diversity
Globalisation has led to increased economic and cultural supremacy.
With globalisation there is arguably less cultural diversity; however,
it is also led to more options for some people.

5. Developing economies who lack the infrastructure to developing

exporting manufacturing sector. The agricultural sector has seen
comparatively smaller growth in real earnings.

6. Some countries have seen a ‘brain drain‘ as young skilled

workers move to higher income countries. This is especially an issue
for Eastern European economies which have seen a net outer
migration to Western Europe. Net migration to Western Europe has
created social pressures.

To what extent is globalization fair?

 How does globalised trade contribute to the continuing division
between the global rich and the global poor?

How much profit is fair?

​Rüschlikon is a village in Switzerland with a very low tax rate and very wealthy
residents. But it receives more tax revenue than it can use. This is largely thanks to
one resident – Ivan Glasenberg, CEO of Glencore, whose copper mines in Zambia
are not generating a large bounty tax revenue for the Zambians. Zambia has the
3rd largest copper reserves in the world, but 60% of the population live on less
than $1 a day and 80% are unemployed. Based on original research into public
documents, the film describes the tax system employed by multinational
companies in Africa.

Rüschlikon is a sleepy village in Switzerland, where house prices are soaring,

unemployment virtually non-existent and social problems few and rare. Discretion
is the local watch word, as Mayor Bernard Elsener puts it, “you can be rich, but
please do not show it.” The good fortune of the village was recently cemented by
the arrival Ivan Glasenberg, CEO of commodity giant Glencore, who netted $9.6
billion when his company went public in 2011. Receipt of Glasenberg’s taxes
overwhelmed public coffers to such an extent the mayor decided to lower the tax
rate.
Less fortunate are the citizens of Zambia, who don’t see bountiful revenues from
their internationally owned copper mines. Zambia has the 3rd largest copper
reserves in the world, but 60% of the population live on less than $1 a day and 80%
are unemployed. “We are aware that Africa is losing more money from tax avoidance
by foreign companies every year than it is gaining in aid from the countries from
which these people come” comments Zambia’s Vice President Guy Scott, who was
elected in 2011 on a promise to challenge existing corporate practices.

However, the terms of Zambia’s bail-out by the World Bank and the IMF in 2000,
when copper prices had hit rock bottom, makes change difficult. The near broke
country agreed to loan conditions that required the sell-off of the mines. As Edith
Nawakiwi recalls “I felt that I was not a minister. I was a beggar.” Copper prices
subsequently rebounded, but too late for the country to benefit from an increase of
over 350%.

“Glencore” comments filmmaker Christoffer Guldbrandsen “is famous for their ability
to spot an opportunity which is what they did in 2000 with the faltering Zambian
mines”. Now a public company, Glencore’s predecessor company was founded by
Marc Rich, a highly controversial and ruthless American businessman who fled US
Justice in 1984. Along with their co-investors, the company successfully negotiated a
royalty rate of 0.6% with the then Zambian administration. The lowest in Africa.
These terms, which the now disgraced former Minister for Mines involved in the sell-off
will not comment on, leave Zambia out of pocket by the exploitation of its own
resources. As well as economic woes, copper has also become a source of health and
welfare concerns in Zambia. Water supplies are being contaminated and air pollution
detected that, observers claim, exceed World Health Organisation levels. “A lot of
respiratory infection cases come” says Dr Makasa Sichela “especially when the
emissions are too big… I feel it myself.” Despite the claims and independently sourced
data, Glencore strongly asserts that its operations are carefully monitored and clean.

“This is a story of global trade where money and natural resources only flow one way.
The Zambian story is only a small piece of the puzzle. Neither the rule or law nor
morals determine what investors pay in tax in Africa. It comes down to what you can
get away with.”
Some facts:
In 2010, approximately 80% of African exports were based in oil, minerals and
agricultural goods.

Around $160 billion worth of taxes are lost from developing countries each year as a
result of multinational corporations dodging paying them.

L​ iberia declared corruption public enemy No.1 and its revenue rose from US$80 million
in 2004/5 to US$142 million in 2006/7.
Global trade brings with it global responsibilities to
make a future that is fair for all
 Aid
• How effective is Aid in
tackling global poverty?
• Impact of US aid
• Case Study
Largest donors of humanitarian aid worldwide
in 2022 (in million U.S. dollars), by country
A Brief History of Foreign Aid
Since the beginning of history, political entities have been interacting, both
positively and negatively. Sometimes they harm each other, sometimes they help
each other. When they help each other we call it aid.
Aid can take many forms, from allowing friendly groups to cross through your
territory or sharing technology to simply giving money to another nation.
In American history, one of the first instances of foreign aid came in 1812 when the
United States provided $50,000 to Venezuela to assist with disaster relief after a
major earthquake hit the nation’s capital. The bill authorized President James
Madison to use the funds to purchase and ship food to the country.
Foreign aid quickly became more commonplace and took on different forms. World
War II saw the Lend-Lease program, a form of foreign aid where the United States
supplied the Allies with more than $50 billion (nearly $700 billion today) worth of
war supplies either through loans or direct gifts. The post-War Marshall Plan
provided large amounts of reconstruction aid to damaged countries and created
markets for US-made goods.
Aid continued to expand throughout the Cold War, and became a major tool of US
foreign policy. The US sent large quantities of aid to developing-nation governments
that it saw as anti-Communist.
Since the end of the Cold War, the focus of aid has become more diverse, but aid is
still used primarily as a tool to advance US policy interests. It is not charity. Today
the government spends $30 to $40 billion each year on aid to other countries.
 Types of Foreign Aid
Humanitarian Aid
Humanitarian aid is a response to natural and man-made disasters. The aid that
pours into countries afflicted by earthquakes, storms, wars, and famines is
humanitarian aid.
Humanitarian aid often comes in the form of basic supplies like food, potable
water, and shelter, and also in the form of reconstruction assistance. It is generally
a response to an incident and is not budgeted in advance for specific countries.
Examples:
https://www.unocha.org/ending-protracted-internal-displacement/case-studies

Development Aid
Development aid is designed to assist a country’s economic, social, or material
development. Projects may be designed to build infrastructure, improve education
or healthcare, strengthen administrative capacity, and much more.
Development aid covers a wide variety of expenditures, but it is proactive rather
than reactive and can be budgeted and programmed in advance. It is a response to
existing conditions in a country, not to a specific incident.
https://www.worldbank.org/en/news/feature/2017/03/27/time-is-money-transfor
ming-dar-es-salaams-road-transport-to-reduce-dense-traffic
Military Aid
Military aid is designed to help a country develop the capacity to defend itself
against aggression or maintain internal stability. It may take the form of weapons,
nonlethal equipment, training, or a combination.

US military aid often involves equipment purchased from US manufacturers and is

sometimes seen as an aid to the arms industry as much as it is an aid to the
receiving nation.
How effective is Aid in tackling global poverty?
The World Economic Forum has this to say:

​ oreign aid is controversial in development economics. Three distinct camps

F
may be distinguished:

One believes that official assistance is ineffective, and has harmed poor
countries throughout the years.

This views official aid as creating dependency, fostering corruption, and

encouraging currency overvaluation (Easterly 2014 and Moyo 2010). It also
prevents countries from taking advantage of the opportunities provided by the
global economy.

Another camp believes that aid levels have been too low, and that large
increases would help reduce poverty.

This camp, however, believes we need a rethinking on the way in which aid is
provided (Sachs 2009 and Stiglitz 2002). In particular, specific interventions,
such as anti-malaria programmes, should be emphasised.