Leibowitz on Trade: The Long History of Traders

Economic activity has long involved trading. From at least the third millennium BCE, trading was a major economic activity. Merchants would purchase and sell commodities in far-flung cities. Many civilizations were built and prospered for centuries because of their merchants—Greece, Phoenicia, Rome, Venice, the Netherlands, England, France, Spain, and Portugal to name a few that were around before 1700.

Trading has generally been risky, but successful traders have grown rich because they make possible the delivery of goods from all over the world.

Governments have long sought to control traders and, perhaps more importantly, to tax away some of their profits—that is essentially the origin of tariffs. Governments want to nurture traders but also want to benefit from their successes. Many wars have started from the desire of governments to grease the wheels of trade for the mutual benefit of kings and merchants.

There is nothing evil about trading—merchants who do not produce goods buy them from willing sellers and sell them to willing buyers. In the process, they create trade routes that give opportunities to new merchants to trade goods. At the same time, manufacturers and farmers develop new markets and expand their sales.

Steel trading has followed a similar pattern since the 19^th century, when steel first became a major product in international commerce. As sailing ships gave way to metal-hulled vessels, steel production became a defense priority. Through the 20^th century, governments nurtured the development of domestic steel production to prepare for war.

Steel traders are businesspeople who bring buyers and sellers together. As noted above, this line of work can be profitable, but it is also risky. The risks come from price fluctuations, international conflicts that make trade very difficult, and protection from governments that want to shield their industries (and workers) from competition that could threaten their livelihoods (and cause them to vote for other people).

While some demonize steel traders (and other traders) as making worker exploitation and air pollution worse, the truth to me is much more complicated. A look at major proposals to address carbon emissions and worker exploitation rings heavily of self-interest.

Take carbon emissions: steel and aluminum currently emit large amounts of carbon based on production processes. Some countries, including the United States, are considering a carbon border tax to penalize dirtier producers. But, as some have pointed out, the US has dirty sectors too. The net result might be, probably would be, sharply higher barriers to trade and not much reduction in carbon emissions. Since carbon emissions are a global problem, a global solution is needed that weighs all interests and does not hurt certain countries, as much as we might wish it to.

Traders are not a convenient scapegoat either. Great merchant cities have long been an object of scorn and jealousy. Just look at the Old Testament book of Ezekiel (Chapter 27). The fall of the great trading city of Tyre was prophesied by Ezekiel and, eventually, it was conquered.

While traders exist to bring producers and consumers to the bargaining table by facilitating transactions, inhibiting trading will not likely have any impact on worker exploitation or pollution. The cleanest and most worker-friendly companies will not escape antidumping or countervailing duties, or a carbon tax inartfully drafted.

International steel traders also trade in domestically produced articles such as steel and aluminum. Domestic and foreign products compete with each other in the largest market on earth, the United States.

Steel trading got a big boost in 1959, when most of the US steel industry went on a four-month strike. During that time, US companies, mostly in manufacturing (autos) and construction, needed steel and could only get it from abroad. Traders, in the form of service centers, spun off from domestic steel companies in the 1950s, obtained needed steel from foreign producers, and consuming industries found the foreign steel pretty good. That was the beginning of steel imports as a major competitive challenge to domestic production. Traders may have made it easier to buy foreign steel. But those traders were set up by domestic producers interested in creating a layer of service providers to deal with consumers.

In the last analysis, traders are neither the cause of imports nor the solution to the travails of the steel and aluminum industries. Traders have existed for thousands of years and will almost certainly continue to exist for the foreseeable future, because they fulfill a need in the market to bring buyers and sellers together.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
5335 Wisconsin Avenue, N.W., Suite 440
Washington, D.C. 20015
Phone: (202) 617-2675
Mobile: (202) 250-1551
E-mail: lewis.leibowitz@lellawoffice.com