Trade Diversification by Country of Origin

Trade Diversification by Country of Origin​

By: Amit Bhushan Date: 19th Feb. 2020

There are quite a few challenges for the trade deal between democratic countries. It is not that complimentaries aren’t available for the trade deals to succeed and yield benefits to nations, developed or developing. The challenges are basically how the larger population visualizes the benefits of such trade deals. Basically, the people in developed world see benefit only when the goods/services that they want to source can be sourced from the cheapest source and in appropriate quantities. Other cnsiderations like the risk to sourcing such goods are often given a go bye. The market access for counter-trade or domestically produced wares is the next issue, but achieving a trade-balance may not be such a big issue as is made out in sundry political circles. Also while the intellectual property theft is made out to be a big issue, it basically tends to affect the businesses/corporate sector, then the voting pubic and therefore becomes an issue only when jobs are being lost in large numbers rather than otherwise. The authoritarian regimes understand and know this behaviour and tend to exploit it for own advantage and the polity in developed democratic regimes seem to be in a bind, for now.

While the business lobbies in developed nations seem to be a strong lobby, however these are guided by consumers even if they face own peril with the loss of intellectual property to certain dominant powers. Therefore compromise in the face of a low cost production base is more of a norm as it yields short term profits and also gains in number of consumers. This however can only be sustained on the back of high speed innovation with continuos obsolence of technologies, but a continued dominence of the firm/s over evolving technology. When this is not sustained there would be challenges to such firms/markets and stability. The developed democratic world (read North America nd Europe) still retains the negotiating power compared to say the democratic developing nations, however they need to look at balancing the trading interests which has been neglected. While they would need to keep the ‘cheap sourcing bases’ intact to satisfy their domestic economic and trading needs, they would need to explore that if dependecy of firms on a single or very few sourcing base is a cause of strength of these firms over a long term.

They should consider if a trade regime whereby trade and sourcing needs of these firms needs to be mandatorily diversified via tariff and non-tariff measures and if this makes them better off. If a product that is not at all manufactured within the country (no running production-lines), then should the entire production be sourced from a single country or should there be a cap of say only upto fifty percent or may be upto a thrid can be sourced from a country with special tariffs kicking-in for the breach of norms. This would force the firms to negotiate harder for protection of their intellectual property and also to find and develop other competitive locations. The nations gains ability to ‘trade’ with these nations competitively and while the population may have a pay a bit higher for the widgets, however the supplies become more sustainable even in the face of threats such as corona virus or natural calamities. The authoritarian nations ability to subsidize their way into world trade and technology plays is cooled down a bit. The challenge however would be domestic polity within America/Europe with the democracy here serving as a means of production and trade concentration to an extent where is an erosion of their own trade competitiveness over a longer term. Such a trade regime would better than National leaderships within these nations signing trade concessions deals with other trade-partners in an adhoc manner, however this may or may not be compliant with multilateral trading regimes, which in any case are becoming defunct. This would also force the developing democratic countries to become more competitive on one hand, it nudges the authoritarian countries to be more accomodative of interests of these firms and reduces penchant to hoarding trade-based negotiating powers. Let the ‘Game’ evolve….

 

[Priyani Gupta]

The article presents a thoughtful and nuanced analysis of the challenges surrounding trade deals between democratic countries, especially developed and developing nations. It rightly emphasizes that while complementary benefits exist, the real challenge lies in how populations, particularly in developed democracies, perceive these benefits. This perception gap often dictates the political and economic realities that follow.


One of the key insights is that consumers in developed countries prioritize low-cost sourcing over other factors such as risk diversification or long-term strategic stability. This is both logical and practical from a consumer standpoint: people want affordable goods and services in adequate quantities. Yet, the article astutely points out that such a focus often leads to complacency about vulnerabilities, be it dependence on single sourcing countries or the long-term erosion of trade competitiveness.


It is refreshing to see the article peel back the layers behind intellectual property (IP) concerns as well. The notion that IP theft is largely a corporate issue and only becomes a political flashpoint when job losses become significant is a reality that many overlook. Democratic regimes often find themselves trapped between corporate interests, consumer demands, and geopolitical strategies, which authoritarian regimes exploit to their advantage.


The piece’s suggestion that developed democracies should consider tariff and non-tariff measures to enforce diversification of sourcing is both bold and practical. Limiting reliance on a single country for critical goods—say, capping sourcing at 30-50% from one country—is an idea that challenges the current free-market orthodoxy but is worth serious debate. This could stimulate more resilient supply chains and reduce the susceptibility of firms to disruptions caused by pandemics, political strife, or natural disasters.


Yet, such measures would not be without controversy. Imposing tariffs or caps on sourcing risks increasing costs for consumers, who may have little appetite for paying more in the short term. Additionally, the idea conflicts with long-standing multilateral trading agreements, potentially fracturing the global trade architecture. Still, the article rightly acknowledges that many multilateral regimes are becoming defunct or ineffective, suggesting that new, pragmatic approaches may be necessary to address modern trade realities.


The piece also hints at a subtle but important political dilemma in democracies. Trade and production concentration may be efficient economically but risks eroding long-term trade competitiveness and resilience. This raises critical questions: Should democracies prioritize short-term consumer benefits over strategic trade security? And if not, how can political leaders sell the idea of higher costs or trade controls to their electorates?


Finally, the article’s framing of trade as a “game” evolving amid competing political and economic interests is a useful metaphor. It reminds us that trade policies are not merely technical issues but deeply intertwined with power dynamics, political calculations, and social expectations.


In summary, this article commendably pushes readers to rethink the trade narratives prevalent in democratic countries. While the proposed diversification strategy might challenge conventional free-trade thinking, it offers a pragmatic pathway to address vulnerabilities exposed in recent years. Balancing consumer interests, corporate innovation, and geopolitical realities remains complex, but acknowledging these tensions openly is the first step toward better trade policy.