Trading Lessons – Losing Your Marbles on Agoa


I remember at school trading marbles for what was then called a “goen,” or larger marble, also known as a whopper. Due to the extreme vindictiveness of my parents, I have always been comparatively less provided with fewer marbles than any other child of mankind – a situation I have pointed out loudly, but to little effect.

So I devised a strategy that involved trading marbles for goens and trading them again with the general intention of increasing my stash. I started with 20 marbles and ended with 10. This was not the desired result.

Luckily, a bit later, at university actually, I heard about David Ricardo and then everything changed.

People tend to view trading in a mechanical and numerical sense, similar to how I used to count my marble losses, which seemed to increase the more frequently I traded marble.

Ricardo’s theory, at least in general terms, was simple yet so profound that it dominated trade theory for over 300 years. The theory is that if two countries produce the same products, but one produces both products more efficiently than the other, it would still make sense for each country to specialize in one of the products and trade with the other.

How is it possible ? It’s simple. By focusing on the product it produces best, the winning country earns even more. Boom. Ricardo hit on something that should have been obvious to everyone: trade is not a zero-sum game. Everyone benefits, even the weakest producer! How weird is that?

Ricardo’s “four numbers” example, as he has often admitted over the years, is a domain-specific theory in the sense that it only works in specific given situations. But no matter, because the example was rooted in this suspicion that free trade increased wealth and protectionism reduced it.

Ricardo has spent his life as an MP and an economist opposing protectionist measures and commercialism more generally, and he has made a huge personal fortune investing in trade. I think he may have been disappointed with my marble trading strategy.

Ricardo wasn’t right about everything. He, like Adam Smith and Karl Marx, believed that labor was the source of value and therefore labor was the root of comparative advantage. But on the trade, he hit the jackpot with a vengeance. And today we can see his power in full force.

The total amount of world trade is simply breathtaking. And it goes up. The correlation between trading nations and national wealth is overwhelming. Apart from oil producers and mini tax havens, every wealthy country – old and new – is also a great trading nation. Trade diversifies our economies, enriches us, increases competition and strengthens mutual knowledge and understanding.

Then Trump arrived. Oh Lordy. Former US President Donald Trump, in addition to shattering the fragile US political consensus, somehow made trade protectionism popular on the political right, while trade protectionism has always been a major part of the philosophy of the political left.

Trade protectionism is popular on the left because open trade tends to disrupt the economy and labor allies on the left worry, not without reason, about how this will affect their members.

The United States has a good trade deficit proportionally larger than almost any other country, so it’s not like Trump is plowing barren ground. But in general, I think politicians, as a group, often fall victim to a deep philosophical commercial conservatism. And academics. And journalists.

Still, the good news is that all of Trump’s gyrations on trade have resulted in an accurate squat. International trade has exploded around the world and is closely correlated to global well-being. Internationally, we have moved beyond this debate.

Well, not everywhere. Take South Africa, for example. South Africa’s Minister for Trade, Industry and Competition, Ebrahim Patel, says very little about free trade, but clearly doesn’t believe in it in the least.

Patel was a trade unionist in the rag trade at the precise time SA began experimenting with free trade in the early 1990s. But, by a horrifying coincidence, that was precisely when China burst into global trade. textiles, and South African industry was decimated.

The experience clearly left a deep scar on Patel, who is now actively campaigning against a trade deal with the United States.

This is extremely worrying as South Africa’s trade with the United States now falls under the African Growth and Opportunity Act (Agoa), a huge concession granted by former US President Bill Clinton to the former President Nelson Mandela. SA’s trade with the United States boomed under the treaty, but then leveled off. Today, whole sections of South African industry, including the automotive industry, are very dependent on it.

The United States believes that AGOA has run its course and should be replaced by a real treaty. In general, relations are not good, especially following SA’s decision to putatively support Russia’s invasion of Ukraine by not condemning it. But the problem is more rooted.

Business expert Donald MacKay, writing in Business daysays Patel is “fiercely” against a trade deal with the United States, so there is now a great danger that Agoa will expire in 2025 without a substitute.

SA launched the first Industrial Policy Action Plan (Ipap) in 2007, MacKay points out. In the years that followed, GDP per capita grew at the slowest rate since 1994.

“We have less industry now than when the first Ipap came out 15 years ago.”

Many people in South Africa believe that the country’s poor economic performance during the Zuma years was a consequence of corruption, which, of course, is partly true. But it was also a consequence of weaknesses in philosophical economics, which helps explain why SA’s growth did not rebound to the global average after Zuma’s demise.

These weaknesses are most apparent in trade policy and pose a huge threat to South Africa’s future prosperity.

SA is in danger of losing his marbles, if he hasn’t already. BM/DM

This note is part of the After the Bell newsletter.

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