Editorial cartoon

What is commonly referred to as free trade is essentially an unregulated economic system under which trade activities across and within territorial borders presumably flows without let or hindrance.

‘Free trade’ refers to an economy with an ‘open policy’ to all manner of domestic and international trade entities. It implies a lack of trade restrictions by policy, regulations, tariffs and laws imposed by government bodies to control, monitor and, when need be, ban the production, distribution and consumption of a given product or service.

Free trade is meant to stimulate the economy by permitting the influx of goods and services, leading to a boom in terms of volumes and variety. A blessing, no doubt!

Yet anyone who has spent an hour in a supermarket aisle trying to decide on the best toothpaste to get will certainly attest to the allure of near infinite variety. It is only natural for a consumer’s brain to be mesmerised by variety in terms of colour, shape and size, and this has great bearing on spending plans.

Tanzania, through the bank of Tanzania (BoT) is currently working to increase credit opportunities in the country, which could mean increased inflow of imports and a consequent drop in demand for local products – regardless of how good the latter might be.

International manufacturers, usually multi-million-dollar international companies, can afford to sell their products at throwaway prices, thanks to the minimal labour expense, a financial move small firms simply cannot achieve.

When a vulnerable market like Tanzania is bombarded with these cheap products, people opt to save money by going for the low priced imports – new and second-hand – tragically, at the expense of local products.

The spin-offs, result in shrinking market for local goods, steep rise in running costs for local firms, mass layoffs of workers – then closures of businesses leading to higher levels of unemployment, strikes, declining revenue for the government, a rise in demand for staff compensations, etc.

It all turns into a vicious circle of problems and complications, what with increases in crime levels as the swelling masses of jobless people seek to meet basic needs. The situation may even evolve into violent demonstrations or major riots resulting in casualties and massive and costly damage to property.

As is well documented, even economic powerhouses like the US are not immune to the negative effects of free trade gone mad. In fact, the US is having a terrible time ‘neutralising’ the massive inflow of cheap Chinese imports, with many small businesses simply unable to compete.

Unemployment levels are soaring as companies lay off workers to cut expenses. December 2008 saw the three US auto industry giants, GM, Chrysler and Ford, begging for a $34 billion government bailout to avoid bankruptcy.

They said their collapse would mean 3 million layoffs within a year. Meanwhile, rather ironically, foreign automobile companies tapping into the US market were experiencing growth.
 

Tanzania must thus learn from these and other examples and regulate its trade policy accordingly by seeking to cut dependency on foreign products, for the low prices often come at a high cost.