The nature of trade

A trade in the commercial sense is a mutually beneficial exchange. With the Africa Continental Free Trade Area (AfCFTA) agreement having come into operation in 2021, ZAKHELE MTHEMBU says it’s fitting to remind ourselves of the benefits of free and unfettered trade – especially for the African continent and its people.

A trade is an exchange that has been established, yet what would necessitate this exchange? Why would someone want to exchange something with another person? The reason is scarcity, coupled with unlimited wants. Time is scarce, in that there are a given number of hours in a day, month, year, or a person’s life. On the other hand, humans have unlimited preferences, from food, clothing, and shelter to leisure.

Hypothetically, let’s say Person A’s most pressing want is food. She wants to be fed so that she has energy. If she takes actions that lead to her obtaining food – like gathering fruits and nuts – it means she is not taking actions that lead, for example, to her obtaining shelter.

Preferences, as mentioned, are unlimited, but can be ranked in an ordinal manner, from most to least pressing. So, whilst making food, which is number one on Person A’s list of preferences (as demonstrated by her actions of obtaining food), she is not taking actions that lead to obtaining shelter, which may be second on her preference list.

Person A may spend the whole day taking actions that lead to her obtaining food. Remember, time is scarce, so when it gets dark and she can no longer be outside gathering, she will find she has no shelter. After satisfying her preference of gathering food, this may now be number one on her preference list. Hypothetically, person A would now be left with a lot of food, but no shelter.

Let us then hypothesise that while Person A was satisfying her preference for food, Person B – someone with a differently structured preference list – was building shelter. To Person B, shelter may be the most pressing need, and as such, he takes actions that lead to constructing shelters. Just like A, B has other preferences, yet whilst taking actions to satisfy one, he is logically not satisfying others that are lower on his list of preferences.

Now when it gets dark, A has a lot of food and B may have erected a structure or two. Both still have preferences to satisfy, yet due to the scarcity of time, they cannot satisfy them all at the same time. How do they solve this problem? By exchanging the products of their actions: since A wants shelter and has food, she can give B half of her food, for permission to share or use one of B’s shelters.

This is why trade happens. Persons A and B get to satisfy two preferences – food and shelter – by simply taking the actions to satisfy one! This basic logic can be applied to even the most complicated economy to understand the benefits of trade. No one would soundly say that the exchange between A and B is exploitative. If it was, then neither party would have made it. Both parties had the option of not trading, and simply enjoying the fruits of their own actions. The fact that they traded means that it was better for them than the act of not trading.

Just as trade is clearly beneficial in our hypothetical catallaxy (see the sidebar above) of two people, it is also beneficial to a catallaxy with 10, 100, 1 000, 100 000, a million, or a billion people. The African Union understands the benefit of trade, to their credit, and this is why the AfCFTA was proposed and adopted by member states. Ideally, trade should not be subject to intervention from third parties, like states, which are not involved in it. The 90% tariff liberalisation proposed by the AfCFTA agreement should be 100% duty- and tariff-free trading among African people. 

Let us add Person C to our hypothetical catallaxy. If C were to charge both B and A a portion of their shelter and food just for the act of voluntarily trading between one another, this act would be clearly unjust. Yet states are allowed to do this all the time with tariffs and duties. The AfCFTA will help alleviate this injustice, but until trade is fully liberalised the injustice will persist – albeit to a lower degree.

Hopefully the implementation of the AfCFTA agreement will see an end to the policies that inhibit trade in African nations. If a country is an AfCFTA signatory whilst inhibiting domestic free trade, then the hypocrisy will be clear for all to see. Clearly recognising and acquiescing to the benefits of international free trade while limiting it domestically is an unjust contradiction! 

Trade is integral to prosperity. It is necessary, then, that the promotion of the AfCFTA agreement is accompanied by a strong commitment by individual African governments to promote trade domestically and limit intervention in their domestic economies. Whilst pursuing the ideal of the full liberalisation of tariffs in the AfCFTA, this will achieve true free trade for the African people who desperately need its benefits.

What is a catallaxy?

Catallaxy or catallactics is an alternative expression for the word “economy”. Whereas the word “economy” suggests that people in a community possess a common and congruent set of values and goals, catallaxy suggests that the emergent properties of a market (prices, division of labour, growth, etc.) are the outgrowths of the diverse and disparate goals of the individuals in a community.

Source: Wikipedia