Trade and inequality around the world

No country in the world can produce all the raw materials, all the energy and all the goods needed by those living there. This is why people and countries trade with each other, all around the world. But does this trading happen in ways that benefit everyone? Many people think it doesn’t. They say that right now, world trade actually creates growing inequalities between nations.

A number of countries around the world have many raw materials and natural resources, such as oil, metals, and minerals, that they can sell to others. Some of these are the richest countries in the world: the high-income countries. Others are some of the poorest countries in the world: the low-income countries. How is that possible? High-income countries often process their raw materials into new products, because they have the money and factories to do that.

They can then sell these new products at a higher price than they could get for the unprocessed raw materials. Low-income countries on the other hand, which don’t have factories or much money, can’t afford to process the raw materials and make them into new products. They have to sell the raw materials in their original form, when they are not as valuable. The prices of raw materials go up - or down - much more than the prices of new, processed products. So the low-income countries have a higher risk of not earning enough money through the trade of raw materials.

High-income countries therefore have an advantage compared to low-income countries, when it comes to trading their raw materials. There are other forms of trade that benefit high-income countries more too. For example, the European Union and the USA set up trade rules - policies - that often demand payment from anyone who wants to sell their goods within their borders. They do this to protect their own companies and industries, but this often makes it difficult for low-income countries to sell their products there. The price they are expected to pay to move their goods across the border is too high.

On the other hand, the EU and the USA often require their products to be sold in low-income countries without having to pay extra fees, or customs duties. This is one of the reasons that products imported from high-income countries often cost less than products produced in the low-income country itself. Local companies and farmers often can’t compete with these low prices, and might go out of business. And people risk losing their jobs. As local businesses disappear, businesses from high-income countries don’t have as much competition, and can raise the prices of the products they sell.

So some high-income countries have got richer, and some low-income countries have got poorer, which has increased inequalities. But it’s not that simple. International trade has sometimes benefited lower income countries more. The question is: Is it possible to make trade around the world more fair? Countries could reconsider international trade policies, and make sure that the same rules apply to everyone.

Low-income countries could also cooperate with each other. Together they could negotiate for fairer rules at the World Trade Organisation. It’s highly unlikely that people, corporations, and countries would stop trading with each other, so it’s important that we aim to make trade fairer for everyone.