CAN INTERNATIONAL TRADE GET PORTUGAL OUT OF MUD?

Portugal Harbor View

Admittedly, it is kind of sad to think about the fact that once one of the strongest countries in the world, Portugal now has become one of the most discussed countries in depress. Economists all over the world are trying to come up with a way to save this country. Centuries ago, Portugal accumulated its power starting with international trade (especially spice trade with Asian countries).  Now is it possible for trade to be Portugal’s way out? Let’s take a look.

Portugal Export Partners

“We feel Portuguese companies are having an exemplary conduct and you can see the clear replacement of imports and focus on exports,” said the CEO of Portugal’s biggest non-state-owned bank by assets. Boosting exports is important to economic recovery indeed. Unfortunately, it is much more difficult to implement than it might sound, despite the convenient harbors that Portugal possesses. Speaking of stimulating exports, the very first strategy jumping out usually is devaluing the country’s currency. As shown in the graph, however, six of the top ten export partners of Portugal are EU members. It means devaluation of its currency is pointless in terms of stimulating exports. What’s more, austerity might be able to cut spending, but it is highly suspicious if it could increase Portugal’s ability to earn foreign exchange. In fact, chances are Portuguese goods and services won’t be attractive unless its prices and wages fall enough to compete with emerging countries such as Mexico and China.

Portugal Export Products

Also, it is hard to define a core export commodity in Portugal. In the past, unrivalled knowledge of Atlantic Ocean and shipbuilding skills put Portugal at the top of the world’s trade players; but these issues are no longer important nowadays. Portugal is not industrialized enough to be able to compete with UK and Germany, it doesn’t have one renowned industry for its own branding as a nation (Switzerland’s watch manufacturing, for example), and it is not extremely endowed with natural resources (in fact it is one of the reasons why Portugal is having close trade relationship with Angola). Therefore, it is a hard task for Portuguese government to think of where to start if it wants to stimulate exports. In the other words, international trade is not as effective a way to get a country rich as it was 5 centuries ago.

Regardless of the jam Portugal is facing, it is still one of the most open countries in the world. In 2012, Portuguese government came up with an idea which could possibly benefit its economy and interactions with other countries—it significantly lowered the threshold of immigration. Needless to say, Eurozone is one of the most wanted immigration destinations in the world, and it has been very demanding to its applicants. Euro debt crisis, however, more or less eliminated Europeans’ “haughtiness”, and Portugal is the pioneer. Since 2012, foreigners who invested at least 500,000 Euros in Portugal’s real estate could become eligible to live in the country. We hope to see the inflow of foreign capital and human resources could lead to faster recovery in Portugal.

From the analysis above we can easily see that, it’s become extremely hard now to stimulate a country’s economy by merely depending on exports. There is a long hard way that Portugal has to go before it gets back to its past glory.

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