When a huge ship ran aground in the Suez Canal a few things happened. Much of international trade was blocked for several days, the internet was filled with memes and we were also very curious. Why is trade between countries so important? We invite you to discover some curiosities on the subject and the less conventional exchanges that take place today. On March 23, 2021, the Ever Given container ship made headlines around the world. It had left Johor, Malaysia, and was on its way to Rotterdam, the Netherlands. However, it ran aground in the middle of its attempt to cross the Suez Canal. The narrowest part of that passage is just over 200 meters wide, while the ship reaches 400 meters in length. It is a gigantic structure: no less than 20,000 containers fit there and it can support a weight of 200,000 tons. The combination was fateful: strong winds, a narrow passage, and a very difficult-to-maneuver boat. The result was what we all know: the Suez Canal was blocked for six days. This caused chaos in world trade. It is that there circulate between 10 and 12% of the merchandise of the entire planet. It is estimated that for each day of blockade almost 10,000 million dollars were lost. The sea route is the most economical to transport goods throughout the planet. In fact, 80% of international trade goes over water. Due to the large number of ships that circulate and the geography of the Earth, the so-called choke points are generated. In general, these are narrow places through which there is constant traffic. These are some of the most important. Like the Strait of Malacca, between Indonesia and Malaysia. Or Hormuz, facing the Persian Gulf. Also, obviously the Panama Canal, which connects the Pacific and Atlantic oceans. And the aforementioned Suez Canal, which was closed between 1967 and 1975 due to a conflict between Egypt and Israel. The ships had to go through the Cape of Good Hope and around the African continent. So far we have seen some of its risks. But, at this point, it is worth asking what the advantages of international trade are. According to the World Bank, thanks to trade, income has increased by 24% on the planet since 1990. This is accentuated among those with the least income: for the poorest 40%, the increase was 50% in that period. But why does this happen? Well, let's imagine a small country, which has half a million inhabitants. If you had to produce all the goods that your population wants to consume, you would have several problems. For example, producing automobiles is very expensive and requires a large scale to make it profitable. On the other hand, our imaginary country might benefit from investing in developing the tourism industry, since it has paradisiacal beaches. In this way, you could earn income from the visitors that come to the place, and then spend it on buying cars that are produced outside. In other words, each country tends to prioritize what, for some reason, it has an advantage. It may be due to the climate, natural resources, technology or specialization reached. It is clear that Chile is the world's largest exporter of copper, with more than a third of the world total, because it has reserves of that mineral. Or that almost 40% of Iceland's product exports are related to fishing because of the availability it has on its coasts. That each country specializes in what it has available to us may seem a bit obvious, but economic theory teaches us something else. Suppose there are only two countries in the world. One of them is better for producing coffee and is also more efficient for making chocolates. Let's think that both countries spend six hours to produce coffee and another three to make chocolate. During a day, the first country produces 12 kilograms of coffee and 5 bars of chocolate. The second, on the other hand, managed to make 4 kilos of coffee and 4 chocolates. The former is more efficient in both products. The previous logic would tell us that that country would prevail and that it would make both products. But it is not like that, since there is a scenario in which both parties can benefit. To do this, the former will focus on what has the greatest advantage, and the latter will seek to specialize in what is less disadvantaged. In this case, the first will make coffee, and the second - chocolate. In this way we arrive at the second scenario: country A spends nine hours and produces 18 kilos of coffee. Country B generates 12 chocolate bars in that time. If they then trade in this way, the first will keep 13 kilos of coffee and 7 chocolates, while the second will have 5 kilos of coffee and 5 chocolate bars. That is, through trade, both obtain more than if they had not exchanged goods. This example helps us understand how trade can help generate wealth and reduce poverty. It is clear that it is a theoretical approach, and in practice there are different factors that intervene. Such as the cost of transportation or the taxes that each country imposes. In fact, that is a great dilemma, and to this day countries answer it in different ways: how open should a country's economy be? Should certain industries be protected so that they generate more employment or is it better to bet on a more open exchange? Each government, according to its ideological vision, will give different answers. In any case, this interdependence that exists between countries generates unexpected consequences. After Russia's invasion of Ukraine, the price of bread rose rapidly around the world. It is that both countries produce almost a third of the wheat of the entire planet. The truth is that international trade is full of specific data that can attract attention. For example, three quarters of Mexico's exports go to the United States. Stranger is to know which is the fifth country to which Argentina sells the most: it is Vietnam, just on the other side of the map. In the case of Spain, someone can guess the main export of products, it is automobiles. But the second is something more surprising: medication. In the future, international trade will continue to generate dilemmas, which have not yet been resolved. For example, Argentina, Bolivia and Chile have 85% of the world's known lithium reserves. It is a mineral that has acquired a lot of value in recent times, since it is used for batteries, both for mobile phones and computers and for electric cars. Some of the rulers of those countries suggested that it would be a good idea to export complete batteries and not just the ore, in order to obtain higher income. However, lithium is only 5% of a battery. In addition, the complete batteries would then have to be transported to the main markets, which would increase the cost since they are much heavier. Somehow, international trade seeks to generate a value chain in which the different countries contribute and at the same time obtain benefits. Although, as we saw with the Even Given, there can sometimes be some drawbacks. Finally, we would like to read your opinion: should countries protect their industries or does free trade have more benefits? We also invite you to be a member of Un Mundo Inmenso. With a monthly contribution you will help us to continue with the channel. You will also have access to exclusive content.
