Introduction to Global Trade

International trade is essential so that people can obtain essentials. Photo by Nathan Cima on UnSplash.

Each month, the UN’s trade and development agency (UNCTAD) shares a report on global trade.

The March report focused on tariffs. It showed that while trade hit a record $33 trillion in 2023, the future looks uncertain. Growing tensions, trade barriers, and disagreements may cause problems in 2025.

Understanding Tariffs

Luz Maria de la Mora is the Director of International Trade at UNCTAD. She helps create the Global Trade Update. Earlier in her career, she helped Mexico negotiate the North American Free Trade Agreement (NAFTA) in 1992, a deal that people still debate today.

She explained that tariffs, which are taxes on imports, are not always bad. The real problem is when big economies stop following the agreed trade rules. This creates confusion and unpredictability.

A Brief History of Tariffs

Tariffs have been around for nearly 80 years. First, the General Agreement on Tariffs and Trade (GATT) was created in 1948. Then the World Trade Organization (WTO) took over in 1995. These agreements gave businesses confidence that tariffs wouldn’t change all the time. Tariffs are still used today, but they are supposed to follow rules agreed by the WTO or regional groups.

Tariffs in Developing Countries

Developing countries often have higher tariffs. There are two main reasons:

They want to grow certain industries like cars or chemicals. Tariffs help protect these industries from foreign competition. But this can make goods more expensive and reduce competition.
Governments also use tariffs to raise money for things like health care and education. But again, this means consumers pay more for imports.

Case Study: NAFTA

De la Mora worked on NAFTA, a major trade deal between Mexico, the U.S., and Canada. It was the first agreement between developed and developing countries. Almost all tariffs between the three countries were removed. This led to more investment in Mexico and made its manufacturing sector strong, especially in making cars. Mexico became one of the top car producers in the world.

Winners and Losers
She admits that not everyone benefited. Some sectors disappeared, and some workers lost their jobs. But others gained new opportunities, especially where regions joined the supply chain. Trade deals like NAFTA should be paired with policies to help workers who lose jobs, like training programs.

In Mexico, farmers got support to handle competition from U.S. and Canadian products. Mexico also began growing and exporting more fruits and vegetables, which helped both Mexican farmers and U.S. consumers. Meanwhile, Mexico benefited from easier access to U.S. grains and meat.

Global Trade Outlook

Are We Heading for a Trade War?
De la Mora warns that some big economies, like the U.S., EU, and China, are taking trade actions that go against WTO rules. When powerful countries stop following the rules, it makes businesses unsure. This can slow investment, trade, economic growth, and job creation.

Developing Countries at Risk
If the global economy slows down, developing countries will suffer the most. Around 95 of them depend heavily on exports. They need a fair and stable global trade system with clear rules that don’t change without warning. That’s why keeping international cooperation (multilateralism) is so important.

Quick Facts About Tariffs

Quick Facts About Tariffs:

Tariffs are taxes on imports, either as a percentage or a fixed fee.
They can make local goods more competitive and bring in government money.
Rich countries often use tariffs as part of bigger strategies.
Poorer countries use them more broadly to help young industries grow.
Rich countries also make more deals to reduce tariffs, while poorer ones may use tariffs to get better terms in talks.

Source: United Nations.

Conclusion

In conclusion, international trade is essential for the global economy, and tariffs play a significant role in shaping trade policies. While tariffs can be beneficial in some cases, they can also lead to trade wars and slow down economic growth. It is crucial for countries to follow the agreed trade rules and work together to maintain a fair and stable global trade system.

Frequently Asked Questions

A: Tariffs are taxes on imports, either as a percentage or a fixed fee.

Q: Why do countries use tariffs?

A: Countries use tariffs to protect their industries, raise revenue, and negotiate better trade deals.

Q: What is the impact of tariffs on the global economy?

A: Tariffs can slow down economic growth, reduce trade, and lead to job losses, but they can also help local industries grow and bring in government revenue.