Trade: A Third Grade Math Problem
Updated: Jul 2, 2022
By Eduardo Castellet Nogués
Throughout the last years, infrastructure proposals have grown tremendously. Although the media has long ignored it, policymakers have understood the importance of trade and logistics investments. One could say that current world politics is like a third-grade math problem: If we know China is building a road to Italy carrying over $5 billion worth of goods, how fast should a US container ship go to counter that offer with more products? This oversimplification addresses the concept that will decide the future of trade: How to distribute goods instead of what goods to distribute.
It is essential to have materials and products to sell internationally. But it is equally important to have a network of roads and paths that ensure the fast and safe delivery of these materials. To set an example: “What”: Germany is one of the world’s primary car makers. Some of the best cars are made in Wolfsburg and Goldberg, totaling 4.7 million cars a year and contributing 5% of Germany’s GDP. “How”: How can we get a hundred thousand German Mercedes Benz cars from Wolfsburg to Cape Town, South Africa, to then distribute them across the African continent?
In past decades, roads had been assumed to be the best form of transportation. Today, however, new means imply new approaches to each situation. A road in the Ethiopian Tigray region, for example, is likely to be attacked, and thus, container ships and air transport could end up being better options, but they are more expensive. This is true for many nations around the globe: infrastructure is just too expensive to build up, and once built, it is hard to maintain. In Spain, for example, the Lerida airport was built some years ago to give an economic boost to the region. An inability to pay for its maintenance, however, has led the airport’s traffic to be reduced to zero airplanes a year, making that investment a lost cause. Trade is, indeed, the key for economic growth and for the betterment of a region. The infrastructure connecting this region to the rest of the world, however, must be one through which goods are transported quickly and safely, but which can also be well kept for decades to come.
Early 2021 proved this idea accurate when the Evergreen, a large container ship, got stuck in the Suez Canal. This fluid path connects South Asia and East Africa with all of Europe and the Mediterranean. Because of these vast connections, it is the most transited trade route and also the highest valued one, with an average of over $9.7 billion USD crossing it every day. When the Evergreen got stuck, there was an overnight global price spike and shortage of supplies, with hundreds of companies around the globe finding alternative routes aside from the blocked canal. It then became apparent that allowing our interconnected global economy to be subject to human error is too dangerous. Policymakers have been working since then on security measures to protect these trade routes. One of these ideas is to expand these paths and to include more nations and regions in the export-import process. One of these examples is the Mediterranean Corridor, a long-standing concept first imagined by the European Commission in the late 2000s.
This idea would create a railing bordering the shores of northern Mediterranean nations inside the European Union. These countries are each other’s largest trading partners and investors, for most of their economies are dependent on the well-being of neighboring regions. Within France, for example, the Alpes-Maritime region, primarily visited by tourists, is dependent on Cannes’ tourism services, which creates a need for effective paths among them. France itself, however, is strongly partnered with Germany and Spain, for they share products and services common among their consumers. By creating a rail path connecting all these cities and regions, trade among them will not be entirely dependent on highway obstructions, bad weather, or other variables, thus creating a more stable network of supplies.
Departing from this idea, in the latest G7 meeting, its members created Build Back Better World (B3W). The goal behind this proposal is to invest over 40+ trillion USD in climate-friendly infrastructure among developing nations in South Asia and Africa. This infrastructure package is intended to rival China’s Belt and Road Initiative, thus expanding democratic influence through investments across the globe. Through the creation of roads, bridges, and perhaps most importantly, internet access, Western democracies can ensure the sustainable growth of Africa, which they expect, should also bring the expansion of political liberties. If this role is left to autocratic nations, however, this change is unlikely to include climate change or the protection of vulnerable civilians as priorities.
Developing intercontinental and regional networks of trade and commerce is the key to protecting supply chains, and thus, they can be used as a force for good worldwide. For them to be effective, and to ensure that citizens worldwide are supplied and safe, these routes must be expanded and diversified, as that will lead to trade being affected less and less by human error.