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The fact that most growth miracles of the last century, including Japan and South Korea, were driven by increasing exports to developed countries proves how important this might be. On the other hand, if developing countries decide to retaliate with higher tariffs on imports in order to keep their current account deficits in check, this will lead to higher prices for imported products and a substitution of high quality foreign products with the domestic ones.

The overall outcome is a reduction in purchasing power due to reduced income and inflation. However, there is also a strong case for the argument that restrictions on global trade might be as much of an opportunity for developing countries, as they are a risk. Restrictions on foreign products imply better protection for domestic sectors such as high-technology industries which developing countries need to improve their growth prospects. In a globalised world, newly emerging infant industries have to compete with century-old industrial giants, and more often than not, are crushed before they can even develop the capacity in terms of human capital and know-how for high technology sectors - and reduce the per-item cost associated with large scale initial investments.

China threatens to cut sales of iPhones and US cars if 'naive' Trump pursues trade war

Restrictions on imports and a closed economy, in this respect, provide a protective shell for domestic entrepreneurs and investors to expand their production and learn-by-doing. As production expands and becomes efficient enough to compete globally, trade protection becomes redundant. He argued that the young American economy should protect its markets from an invasion of British products so that American industrialists are given a chance to make themselves competitive.

Cambridge Economist Ha-Joon Chang argued that the infant industries hypothesis is still relevant in the modern context. In his influential book Kicking Away the Ladder , he argued that developed nations force liberalised trade and globalisation upon less developed nations so that they can enjoy both the cheap labour force and the larger market of developing countries.

By doing so, they deprive these nations of political instruments like trade protections which they themselves had the luxury of using while in their own infant-state era. A trade war, in this respect, provides a loophole in the global hegemony of industrialised countries and enables less developed countries to better manoeuver their political agendas. International financial institutions such as the IMF, World Bank and especially the World Trade Organization WTO have been the driving instruments of powerful nations to put pressure on developing countries to lower trade barriers and open their markets.

Now, that the US itself is violating the WTO rules, these institutions have less leverage in pushing developing countries towards free trade. Both Germany and Japan are successful examples of how instability and a lack of hegemony in the global trade system may be an opportunity for latecomers to catch up with the industrialised powers of the world. In a world where developed nations violate the rules they have set, developing countries can find a degree of independence. Needless to say, trade restrictions do not automatically give way to industrialisation and improved economic performance.


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Restrictions on imports merely provides an opportunity for domestic industrial sectors to emerge but this is not sufficient in and of itself. First, without an investor class that has minimum levels of capital accumulation and a tendency to invest in productive activities, there is not much to protect.

This is likely to be a problem, especially in the least developed countries including most sub-Saharan economies. Second, without government initiatives to provide basic physical infrastructure and supporting institutional arrangements like the rule of law and property rights, productive economic activity is unlikely to function efficiently. Last but not least, manipulating markets for the better is a complicated endeavour which is why so many growth economists approach trade restrictions with suspicion. Governments that succeed in maintaining the inflow of necessary intermediate goods and financial capital while restricting the import of domestically substitutable final goods will benefit from a potential trade war.

All in all, a trade war poses an opportunity as much as it does a risk for less developed countries.

The State of U.S. Trade Policy

Even though living standards may deteriorate in the short run due to higher prices, developing countries can benefit from a period of limited international trade in the long-run if they can manage the process by protecting innovative and productive industries, and enhancing their competitiveness. It's ironic that the exclusive and selfish policies of the leaders of developed countries provide an opportunity for developing countries to create more sophisticated economies and improve the living standards of their citizens.

Developing nations should really make the best of this because these episodes are rare, and short. Disclaimer: The viewpoints expressed by the authors do not necessarily reflect the opinions, viewpoints and editorial policies of TRT World. We welcome all pitches and submissions to TRT World Opinion — please send them via email, to opinion. His research mostly focuses on economic policy in the context of underdeveloped and developing countries.

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News Opinion Is a potential trade war an opportunity for developing countries? He finds that there is substitution in production in the short run, with total agricultural output responding negatively to increased export prices and positively to increased food prices, and suggests that this result is consistent with diversion of resources into perennial cash crops, resulting in short-run reductions in food crops with any increase in the production of export crops taking longer to come through.

Introduction

The preceding text has established that there are a range of avenues by which improvements in agricultural productivity can contribute to economic growth and improved food security. In the following sections, potential constraints, particularly to smallholder agriculture, that may result either from inappropriate policy advice or from recent changes in global food systems are discussed. Most episodes of unilateral reform have been characterized by a dominant policy orthodoxy with respect to promoting sectoral efficiency as a mechanism for stimulating the development of poorer countries, and which is closely related to the concepts introduced in Part I.

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Such reforms are on the one hand, defended as necessary for promoting agricultural growth; and on the other, attacked for resulting in the marginalization of resource-poor farmers in many developing countries and thereby limiting the extent to which the agriculture sector can contribute to wider growth. He notes that whilst there has been considerable success of many elements of the package, the consensus has come in for criticism over the past decade, and suggests that it is not so much the instruments themselves but the context in which they have been used that has resulted in lower than expected results.

For instance, he makes the point that the response to any policy change, such as trade liberalization, that operates through price incentives depends both on non-price factors and the time horizon; and that if domestic supply constraints other than the price received are severe in the short to medium run, removing all price distortions would have only a limited favourable response. In analysing the impact of reform, assessment of complementary policies and of the context is therefore essential.

Stiglitz [] takes a similar tack, suggesting that ideas developed for Latin America - the three pillars of fiscal austerity, privatization and market liberalization - have been inappropriately used in other developing countries at earlier stages of development. Partly as a reflection of these criticisms and internal evaluations [] , the Washington Consensus has evolved considerably since the early s, and now includes strong emphasis on poverty, institutions and governance, participation and environmental sustainability.

The World Bank makes the important point that structural adjustment is policy and institutional reform that takes place at a country level with or without external support [].

It gives the example of Malaysia as country that has adjusted without external support. Indeed, only as recently as did structural adjustment lending first exceed a quarter of total World Bank lending. A shift in donor financing took place between and from project based towards structural adjustment lending. Early adjustment loans focused on the achievement of economic stability in the main, to help provide balance of payments support following the oil shock, so that countries could focus on stabilizing their economies and on correcting distortions.

The loans tended to support macro-policy reform such as trade liberalization, privatization and financial restructuring, designed to increase efficiency. Little attention was paid however to the social impact. It is this early lack of attention that is still used as a main point of criticism of structural adjustment programmes. During the remainder of the s, the deep-rooted institutional and structural weakness that were causing weak performance became apparent, and lending became more focused on the short-term impacts on the poor who tended to suffer most and measures to alleviate them, for example: compensatory measures including public works and microcredit, and the maintenance of social spending.

During the s, reform of financial and private sectors and public sector management have taken precedence over stabilization measures and greater emphasis has been put on poverty reduction and social sector reform, with the proportion of poverty-focused adjustment operations rising from 31 percent of all lending in to 69 percent in []. The change in emphasis has been credited with improved performance of the loans. Over recent years, however, there has been greater selectivity of above-average performers. In the s, 25 percent of countries taking loans had taken 4 or more; in thes this number had increased to 42 percent.

Three countries Argentina, Ghana and Mexico had each taken more than 15 loans. The main prescriptions of the Washington Consensus relate to price policy; fiscal policy; exchange rate policy; credit policy; trade policy; institutional reform; investment policy; and other less tangible, but no less important, areas of reform relating to improved democracy and governance, including reforms to better transparency and the rule of law [].

Adjustment Lending Retrospective. Liberalization often occurred before safety nets were in place, because he argues, of the misplaced emphasis on market fundamentalism when the reality was one of imperfect information and imperfect markets. Relating this to the agriculture sector, Stiglitz notes that the abandonment of pan-territorial pricing was often forced before improved road systems were in place and that this often resulted in remote, poor farmers becoming poorer.

The Washington Consensus applied to agriculture []. These operations have often not met expectations and have in recent years diminished in importance, as reflected in Table 6. Recently, the World Bank has developed explanations of why the agricultural sector has failed to fully realise its potential in bringing about rural development and poverty reduction [].

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5 ways to make global trade work for developing countries | World Economic Forum

Agriculture is perceived as insufficiently competitive in the world market and, in many cases, as facing skewed distribution of resources and adverse resource endowments. For instance, Africa has inadequate irrigation, and in almost all developing countries traditional large-scale state managed irrigation schemes require continuing subsidy especially maintenance costs.

The key problems are identified as policy and institutional failures. Kydd and Dorward [] suggest that policy failures are conceptualized by the Washington Consensus as the suppression of agricultural incentives through economy-wide policies which discriminate against agriculture; excessive explicit taxation of agriculture; urban bias consequent on the weaknesses of political institutions; and quantitatively inadequate, while also inefficient, support for agriculture.

These failures are used to prescribe greater private sector incentives to engage particularly in input provision; sustainable resource management; commodity diversification, especially into non-traditional crops; decentralization of service delivery; and participation of farmers in setting objectives, conducting research and evaluating results. Examples of these prescriptions are captured in Box 6. This theme, and in particular, the role of the state, is developed further in Chapter 8. There needs to be greater recognition of the different challenges facing areas at different stages of agricultural modernisation, in particular, differentiating between those areas which have not yet experienced agricultural modernisation and those which have gone through the early stages of such modernisation, with associated development of institutions and of the non-farm sector.

Experience from agricultural modernization in Green Revolution areas in Asia and Latin America and from the few and sometimes short lived Green Revolutions in Africa, shows that achievements in the past have been gained through, or associated with, large scale investments in development of appropriate technology, supportive policies, and infrastructure and support services enhancing the functionality of input and output markets, seasonal finance, and extension.

Advantages and Disadvantages of Trade for Developing Countries

This raises serious questions regarding the commitment of governments to agricultural development, as well as the appropriateness of the current orthodox prescriptions towards the sector. Apart from the obvious fiscal constraints to the state adopting a greater role in facilitating agricultural development, additional constraints may be imposed by multilateral agreements that are attempting to move in the opposite direction.

The principal objective of the UR AoA negotiations was to bring some discipline to the distortional policies in OECD countries, which few developing countries are able to afford. However, the FAO has stressed that the Agreement leaves a substantial imbalance in the remaining levels of domestic support and export subsidies allowed to developed countries, on the one hand, and to developing countries, on the other. In negotiating the Uruguay Round Agreement on Agriculture AoA it was recognised that domestic support to agriculture had the potential to distort trade via its encouragement of excess production which, by depressing world prices reduced incentives for production in regions holding a comparative advantage in those production activities.

At the same time, it was recognised that not all domestic support measures will potentially cause significant distortion. The AoA reflects this by categorising policies into one of three boxes:. Amber box which includes domestic support subject to reduction commitments such as market price support and input subsidies. Blue Box which allows exemptions to support measures involving direct payments under production limiting programmes based on fixed area, yields or livestock units, and.

They also include environmental protection and regional development programmes. Global levels of Amber Box support remain high and the distribution is skewed against developing countries. The majority of developing countries have reported zero or less than de minimis total base AMS levels. Most of these countries have no reduction commitments on domestic support, but neither do they have WTO rights to use Amber Box support in excess of the de minimis level in the future. Although many of these countries are not currently constrained by the domestic support provisions of the Agreement, they may find their policy options limited in the future.

Although there has been some reduction in the use of Amber Box subsidies, this has been more than counteracted by the increased use of transfers falling within the Green Box and Blue Box exemptions. However, as Oxfam stresses, although considered minimally trade distorting, these interventions still impact on production decisions by reducing the risks faced by producers.

High levels of border protection in many developed countries are an impediment to exports from developing countries. However, because some developing country exporters benefit from preferential access to these markets in some heavily protected products, it is difficult to achieve consensus among developing countries on reducing such barriers. An across-the-board reduction in tariff bindings on agricultural products could also leave little room to provide a degree of protection for sensitive sectors.

Is a potential trade war an opportunity for developing countries?

In addition, some countries have bound their tariffs at very low levels and consequently now have little room for manoeuvre in the use of the tariff as a contingency measure against price fluctuations on world markets. Whilst special safeguard SSG provisions are designed to allow an importer to increase tariffs above bound levels in response to a surge in imports or a decline in import prices, most developing countries do not have access to such measures, because the agricultural SSG measures were reserved for countries undertaking tariffication.

Maintaining the SSG under present conditions will perpetuate discrimination against WTO members who do not have the right to safeguard measures.


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Some suggestions have been made to eliminate the SSG altogether. Export subsidies further distort global markets and can destabilize world prices, as developed countries tend to use subsidies more when world prices are low, thus further depressing prices. On the other hand, subsidized exports tend to fall when world prices are high, just at the time when developing countries might be said to benefit from subsidized supplies.