Question

Developing countries complain that the current international trade practice doesn’t reward them because of the worsening terms of trade of primary products that are exported mainly from developing to developed countries. In response to such situation, it is suggested that developing countries create cartels in order to control the price of their exportable primary products. What are the challenges of such trade policy? Discuss in detail, and when applicable, provide examples to support your arguments.

Answer 1

Worsening terms of trade of developing nations is credited to the fare of primary items. Demand for primary item is less elastic. Shaping cartels would have following difficulties:

•         By controlling the cost of primary merchandise, the profits can't be made because of the lesser demand in the global market.

•         It would prompt the expansion in the generation of primary articles in the developed nations which would additionally diminish the demand for the results of developing nations.

•         Developed nations may embrace countervailing strategies.

•         It would decrease the span of market for developing nations