Socio-Economic Impacts of Trade

What is Sustainable Trade?

Sustainable trade refers to the practice of trading in a manner that simultaneously supports economic growth, social development, and environmental protection. In 1987, the United Nations published the Brundtland Commission report which stated, “Sustainable development is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” As global trade is such an important economic driver of the world economy, it is essential to consider the social, economic, and environmental consequences and impacts of trade on both people and the planet. How can sustainable trade ensure long-term benefits, and what practices can be implemented to ensure long term sustainability of the industry?

Trade has been instrumental in the growth of the global economy. In many respects, it’s the world’s economic veins and arteries, pumping the economic essentials to all corners of the globe, from energy, building materials, food, to machinery parts. With the expansion coupled with how integrated the global value chain systems are, it is important to understand the impact of trade on the environment. Over and above, there are also significant social and economic impacts of trade that need to be considered from job creation to the impacts of trade sanctions, food security and emergency relief. There are both positive and negative impacts across social, economic and the environment. 

From a regulatory standpoint, policies in place today that generally prioritize sustainable trade typically involve measures such as monitoring and mitigating carbon emissions, promoting best practices such as using renewable energy sources, and ensuring fair labour practices.

Socio-Economic Impacts of Global Trade

Some positive socio-economic impacts of global trade include job creation and nation-building, when we consider the number of people the industry employs, and how strong trade can build entire economies. Wealthier economies usually translate to a well-paid working population, leading to more productive societies, as a whole. It is estimated that global trade and logistics employs anywhere from 5% to 10% of the world population. When we think of all the people employed around the world working at ports, customs authorities, import and export companies, third-party logistics providers or as truck drivers, crane operators, ship captains and crew, train operators, cargo plane pilots, courier services, last-mile delivery, and all the jobs supporting this industry from shipyards, ship builders, train and track manufacturers, mechanics and many more – the list of careers supported by this industry goes on and on.

“It is estimated that global trade and logistics employs anywhere from 5-10% of the world population.” 

Though global trade has increasingly allowed almost any person in the world to have the same access to the latest toy or gadget, no matter where they live, there are also some negative implications. One negative socio-economic impact is job insecurity in industries which are unable to compete with imports. For example, it may be cheaper for you to buy Brazilian lamb than the lamb produced and distributed by your local farm, putting local industries in jeopardy. 

Other economic impacts include job losses as manufacturing bases shift from one country to another, and pressure on domestic industries which have to compete with imports. There was a massive shift of manufacturing plants to China and Southeast Asia in the past two decades, as they became the world’s “factory” lowering production costs, due to low labour wages and weaker regulations that allowed for higher productivity. But there is a price to pay for higher productivity at a lower cost. When manufacturing bases shift to low-income developing countries which might have weaker regulations, it could mean that there is a higher risk for human rights violations, poor working conditions that disregard health and safety, and exploitative labour practices.

On a more subtle but pervasive level, global trade can also indirectly result in the loss of local cultures as products and services become homogenized and standardized, crowding out self-produced, traditional, and locally manufactured goods. Ever notice that no matter what country you go to, people tend to wear the same brand of shoes or have a similar fashion sense? Thus, local shoemakers, local designers, and local jewellery makers may be going out-of-style and contributing to us losing our cultural heritage around the world. 

Impact of Trade on Employment and Economy

Economies that trade more generally grow faster, are more productive, more innovative and have higher incomes, according to the World Bank. Developing and emerging markets value the role of trade in job creation, as highlighted in a 2018 survey conducted by Pew Research which stated that more than half of emerging economies said that trade is a key driver in job creation. Millions have been lifted out of poverty as the number of people living in extreme poverty has been cut in half since 1990, to just under one billion. Advanced economies also agreed that trade created jobs more than resulted in job losses, however three advanced economies – Argentina, Italy and Japan – said trade results in more job losses than job creation. Nearly an equal number of people in Australia, Germany, US and France thought that trade resulted in both job creation and job losses.

Infobyte: A Majority in Emerging Markets Say Trade Creates Jobs; A Smaller Share in Advanced Economies Agree

With positives come the negatives as well, and one of the most contentious issues is pay disparities across economies. Pay disparities exist due to competition between nations and this is due to multiple reasons including globalization and the global value chains enabling companies to optimize their operations. A more human-centred approach was issued by the International Labour Organization, which is the ILO Centenary Declaration for the Future of Work (2019), which focuses on increasing investment in people’s capabilities, increasing investment in the institutions of work and increasing investment in decent and sustainable work. It calls for countries to place decent work as a central objective of trade policy and for trade to support sustainable development and social justice.

Read Next: Socio-Economic Impacts of Trade

To read more about the power of sustainable trade in the race to net zero – read the full report here. 

 

This article was originally published on Lucidity Insights, a partner of Entrepreneur Middle East in developing special reports on the Middle East and Africa’s tech and entrepreneurial ecosystems.