Significance of Trade

Impacts of Trade on Civilization

Past: Trade encouraged the innvention of letters (Lenders needed a means of keeping records of loans) in the early stage of civilization. (Sumerians invented cuneiform —wedge shaped— letters in the Biblical city of Uruk around 3300 BC.)

Present:

1. Trade promotes peace among nations, e.g., European Union. There have been no large scale wars in Europe since WWII.

2. Trade encourages exchange of ideas and encourages new inventions. For example, China or any other country does not need to reinvent light bulbs.

3. Trade is a great civilizer. (Trade civilizes traders and contributes to a gradual reduction of racial prejudice among traders. One cannot hate the Japanese people and love their products. Trade promotes mutual respect for fellow human beings that produce quality products.)

Future

1. Increasing global trade encourages small countries to adopt the language of a larger trading bloc. Common language builds confidence among different races. Global trade will lead to the adoption of a universal language. (English or Chinese?)

2. Factor price equalization (wait until we cover this topic in the Heckscher-Ohlin model).

3. Convergence of per capita incomes. (K/L ratio falls as income rises)

Sumerian instruments of writing.	Ancient Babylonian clay tablet (c. 2500 BC)	How to read Babylonian numbers in early cuneiform text. Counting in Babylon, copy
	See the similarity of Cretan and Japanese syllabaries. Cretan Linear B Syllabary copy Ugariatic alphabet Phoenician alphabet	Hiragana (Japanese) copy

Plimpton Tablet, Columbia University Library, May 2001

An old Babylonian tablet (1900 - 1600 BC), shown on the left, contains the so-called Pythagorean Theorem, except that it predates Pythagoras by a millennium or more. According to Neugebauer and Sachs (1946), the tablet lists in the two middle columns the numbers that satisfy the so-called Pythagorean Theorem. Specifically, from the left, the first column indexes the contents of the table (1, 2, 3, …), the second and the third the hypotenuse c and the leg a of a right triangle all in sexagesimal numbers. The fourth column shows (c/b)2 where b is the basis of the triangle. For instance, the 11th row shows 75, 45, and 1.5625 = (75/60)2. A translation of another Babylonian tablet preserved in the British museum states (John Heise): 4 is the length and 5 the diagonal. What is the breadth? Its size is not known. 4 times 4 is 16. 5 times 5 is 25. You take 16 from 25 and there remains 9. What times what shall I take in order to get 9? 3 times 3 is 9. 3 is the breadth.

Three Major Early Civilizations

1. Indus Valley Civilization - arose around 2500 BC. Harappans built public baths and cultivated cotton. Their cities such as Mohenjodaro (now in Pakistan) had brick buildings, brick covered streets. Here are a couple of terracota objects from Mojenjo-daro.

Pipal (a kind of fig) tree or Tree of Life, Mohenjo-daro, 2500 BC	Lord of Animals, Mohenjo-daro, 2500 BC (Smithsonian Institution)

2. Mesopotamia: Sumerians invented writing and beer. It began around 2700 BC. Abraham was born in a Sumerican city of Ur of Chaldea.

	A cast of a stone tablet from the Uruk period (3300 - 3100 BC). The original is from Kish and was in Irak Museum. (Whether it is still there is uncertain due to the looting in 2003.) Symbols: head, hand, foot, 1, 2, 3, hammer (British Museum)
	The symbol for beer is an upright jug with a pointed base. It appears three times on this tablet. (British Museum)
	The symbol of a human head with a triangular object is the verb meaning "eat." (British Museum) Look for this symbol in the above tablet.
	The Epic of Gilgamesh also record that Babylonains drank beer. Gilgamesh sends a whore to Enkidu, who wanted a match with Gilgamesh. "Enkidu knew not what bread was nor how one ate it. He had also not learned to drink beer. The whore opened her mouth and spoke to Enkidu: Eat the bread now, O Enkidu, as it belongs to life. Drink also beer, as it is the custom of the land."

3. Chinese civilization: Chinese began to use pictographs from Shang dynasty (1766 - 1050 BC). Chinese who settled around Yangtsu River developed sericulture (silk). More on this later.

	A ritual wine container, from Anyang circa 1200 BC. Shang Dynasty (1766- 1050 BC). Smithsonian Institution.
	Burial jade disc. Eastern Zhou dynasty (770 - 221 BC). Compare these with Etruscan art below.
(Smithsonian Institution) (British museum)	Etruscan bronze pots. Etruscans were the early settlers in Northern Italy. The first king Tarquin (616 - 578 BC) was an Etruscan. See Etruscan Art for more.

Significance of International Trade

Income dependence, X/Y = Export-income ratio.
In 1991

1.            Kuwait                            ?
2.            Switzerland                        35%
3.            Japan:                             10%
4.            Sweden                             28%
5.            Norway                             45
6.            Finland                            22
7.            Denmark                            36
8.            Germany                            34
9.            US                                 11
10.           Canada                             25
11.           France                             23
17.           UK                                 24
18.           Singapore                         185
19.           Hong Kong                         141
107.          China                              20
125.          Uganda                              7

Y = value added

X = total value of goods exported

So X/Y can be greater than one.

(X + M)/2Y  in 1985


  Canada                     28%
  France                     24%
  Germany                    33%
  Italy                      27%
  J                          15%
  UK                         28%
  US                          8.5%

Question: What would happen if the US were to sever its trade relations with other countries?

Question: What would happen to the US economy if we had no steel industry, which accounts for less than 1% of GNP

          Because steel is used as inputs in many other industries, the US economy would probably collapse. Some industries may have to find close substitutes for steel. For example, the auto industry has used aluminum and plastics as substitutes for steel. However, the absence of steel would cause a bottleneck in most countries.

         

	A steel plate from a blast furnace, Pohang Steel, South Korea.
	Rolled steel plates. December 2006.

Cutting our external trade would cause a similar bottleneck in our economy. England or Japan, which heavily rely on foreign trade would probably collapse when trade is eliminated by external forces such as earthquakes or electromagnetic storm in the solar system.

          The US probably could cope with such disaster better than any other countries. But we would still suffer from a significant reduction in our standard of living.

          For example, coffee, tea and cocoa have to be foregone.

          The US is the country that is most abundantly endowed with natural resources. But there are only two kinds of metals that the US has enough and does not import from the ROW.

          Molybdenum: a metal used as alloy with iron to make high-speed cutting tools, as drill bits and electric saw blades.

          Magnesium: a metal that burns with dazzling white light, used as flare, antacids.

U.S. Dependence on the ROW

What damage could be done to the US economy or national security by the loss of access to foreign supplies?

US has stockpiled some 500 million barrels in its strategic petroleum reserves to cope with possible shortages.

Mineral       Import (% of C)           Source

Manganese           100%                 South Africa
Bauxite             100                  Australia
Platinum             88%                  Canada
Tungsten             75%                  China

The real question is not whether the US is capable of surviving or not, but the question is whether the cost of producing the import substitutes is higher than the cost of imports. We are importing those because it is cheaper to import than to produce those goods ourselves in the domestic market.

Small countries

Large countries tend to manage without trade, but small countries would suffer most when imports are eliminated.

World Trade, 2003.