Environmental Effects of Trade – Development and Destruction

Behind its glorious appearance of hiking GDP, international trade has also caused irreversible destruction on ecosystem, especially for developing countries in the tropical area. The development of comparative advantages for emerging markets and deepening of global economy interconnection come with a price in terms of pollution, greenhouse gases, deforestation and desertification.


Tropical Countries suffer

International trade can affect sustainable economic development and environment several ways. First, the profit-seeking pressure from free trade can encourage production activities to shift to places where the environment is less sustainable, such as coffee beans planting and logging in Tropical countries. Second, trade liberalization changes the pattern and level of world consumption as well as production, and the effects of these changes go beyond the economic terms into both environmental and ideology terms. Third, trade influences the process of economic development, creating fresh opportunities for the profitable use of productive resources.

Since the 1980s, the increasing the demand for agriculture, crop and livestock products grew accompanying with the rising global trade. With relatively low competitive products, developing started their trade by exporting natural resources in exchange of the capital-intensive goods such as machinery. As a matter of fact, countries in the tropics are among the largest global exporters of key agricultural commodities such as oil palm, rice, soybean, sugarcane and cassava.

However, the only choice to catching up with the surging demand with limited territory is to convert their forest for agricultures and livestock production, which caused a unmeasurable environmental loss totaling US$1.7 trillion in terms of biological diversity and ecosystem balance. The red list on International Union for Conservation of Nature and Nature Resources states that up to 30% of species threats are due to international trade with developed countries such as the UK and US in products grown using destructive practices.

Amazon Forest – More Worries Ahead

chart-amazonThe dispute on Amazon forest has been a hot environmental issue for a long time. Although the primary cause for deforestation in the Amazon forest is the mismanagement of Brazil government regarding the excessive cattle ranching and commercial logging, international trade does play an crucial role in accelerating the process. Natural depletion of fuel woods, fruits, nuts, mushrooms has push the eco-system in the verge of collapse and an urgent argument of international  collaboration are proposed.

In 2007, Greenpeace also came up with a plan to stop deforestation in the Amazon by creating financial incentives to promote forest protection and in 2009 climate change negotiations in Copenhagen, the “Redd” mechanism proposed that richer countries could offset their carbon emissions by paying to maintain forests in tropical regions. By no means, we can see from the charts above that Brazil did implement sone of these suggestions, yet more aggressive and  efficient way of protect this ‘lung of earth’ shall be in plane in the following years.

Green Label – Positive Progress

From 1990s, the European Council Regulation encouraged “environmentally-friendly” packaging of all products traded within the EU. Plenty of manufacturers viewed this “green packaging” measurement as discriminatory and a barrier to free trade, especially for Germany which failed to get approval from EU for its supposedly “eco-friendly” packaging. Although the large scale of adjustment for production line was not cost effective at the time, this policy proved to be a helpful step toward an environmentally-sound Union.

Next Step

Traditionally, we argue that free trade can benefit countries and create a win-win for both parties, yet taking the environmental factor into account, there are indeed winer and loser in trade: For the importing country, any decrease in resource depletion of the imported product represents an additional gain; For the exporting country, the environmental cost of supplying the global market is am additional loss. 

However, the trade-off between economic development and environmental destruction is reconcilable. As incomes rise, demands on resources increase, but at the same time, income growth can also lead to more effective demands for better environmental quality.

In addition, increased incomes make investment in resource-conserving strategies both more affordable and more attractive. Higher incomes and better employment opportunities widen the range of choices thus leaving fewer rural people dependent on environmentally fragile areas, such as steep hillsides, for subsistence.

Technology enhancement for the production process is important for sustainable growth, and an international consensus to put the healthy eco-system in the priority shall be settled sooner than later for the greater good.







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3 Responses to Environmental Effects of Trade – Development and Destruction

  1. Qixiang Wu says:

    The environmental issue within free trade is one important topic and needs more concerns about it. However, free trade might not be the cause of all these environmental issues, but instead, a possible solution to improve it.
    The history of economic development shows that many countries follow the similar pattern to develop. Firstly, industrialization and modernization bring about fast economic growth. And citizens enjoy the convenience of modernization and the sufficient goods and services industrialization provide. They tend to pursue GDP growth and ignore the environmental costs. But as the economy develops, people care more about environment and health as they have enough goods and services. The whole society start to worry about the environment. Topics and arguments between economic growth and environment appear in the agenda.
    What I want to show here is that in different economy level, people care different things. And what free trade can do here, is to raise the topics of environment before the costs become a huge burden for the whole economy in those developing countries. It can help avoid the old developing pattern by imposing appropriate rules and restrictions on the products to force those countries adopting more efficient and environmental-friendly production methods. Free trade is about sending signals to countries exporting not only about what products the world wants, but also about how products should be produced.

  2. shujingli says:

    Hanyu’s article is a thought-provoking one. I am interested in this topic as well. Almost every developing country is facing a dilemma between fast growth and environment protection. On one hand, local people have urgent demand on wealth, infrastructure, high quality education and efficient medical system, while nature resources are treated as granted. On the other hand, they will, sooner or later, find that while sacrificing environment may create short-term benefit, it definitely hurts the economy in the long run. In Brazil, export demand for beef and soybeans accounts for 20% of the destruction of forests which leads to 27 tons of carbon emission.

    While profit is the invisible hand driving behaviors, there are solutions to the environmental problem. First, regulation and public opinion will play a significant role. Nike used to have ‘sweat shop’ in Asia, where employees work for long hours with little pay, so that profit flowed back to Nike’s headquarter. Yet public pressure made Nike realize that ‘sweat shop’ strategy would ruin its image, so Nike stopped its ‘sweat shops’ and started to advertise it social responsibility. Public opinion can play a same role in environment protection. When firms realize that gains from destroying environment will not cover their loss, they naturally stop destroying. Another way is that business find out a win-win solution with its stakeholders, where firms apply corporate social responsibility (CSR). For example, logistic firms can optimize their network to cut cost while reduce carbon emissions. Similarly, soybean import companies may provide higher-production soybean seeds to Brazil farmers or train them to farm more efficiently. In this way, import countries can secure soybeans supply as well as build positive public image.

  3. Mike Chaput says:

    Very interesting article. I think the negative environmental externalities of free trade often go unnoticed while the benefits are constantly being talked about. In reality, trade is not the clear “win-win” that we always hear about in our economics classes. I agree with you that many of the environmental problems can be attributed to corporate greed, but do you think this is a result of trade alone? Or would this problem still exist to this degree even without the “profit-seeking pressure from free trade”?

    I definitely believe major changes need to be made sooner rather than later. The effects that pollution, deforestation, and carbon emissions have on the planet are so easy to see and so dangerous. It seems like potential solutions to this problem need to be more aggressive, rather than just offering “financial incentives” or “suggestions”. Laws need to be implemented with strict consequences for breaking them, or else the environmental destruction will continue. I have seen suggestions that developed countries should have stricter emission laws than developing countries, which makes sense because carbon emissions are a direct result of development. I am curious to see what the future holds for environmental regulations. It is encouraging to see the downward trend in deforestation in the Amazon, but the damage already done is devastating. This is a topic that certainly needs more attention, especially as globalization continues to increase the amount of world trade.

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