Interdependence means that LEDC’s and MEDC’s actually rely on each other, and without one the other would not be able to survive.
For this reason it is in both sets of countries interests to trade freely with each other. However it is also the case that the developed countries of the world rather like their position as world leaders and so they use trade to keep the developing countries in a position that does not threaten them too much.
There is a balance of trade between the countries of the developed North and the developing South. However not everyone agrees that it is particularly fair.
The developing countries of the world tend to have most of the raw materials that the developed countries need. However the developing countries do not have the technology or finances to process these raw materials and so sell them to the developed countries who can process them.
Often the products produced are then sold back to the developing countries for a far higher price than the original raw materials were sold for.
Every country imports and exports. This is their own trade balance. Developed countries tend to earn more money from their exports than they spend on imports, meaning they have a trade surplus and will become richer. Many developing countries import more than they export,meaning they have a trade deficit and so become poorer, and fall greater into debt.
The biggest single problem for developing countries is the debts that they have, especially as there are interest payments on them. That is why many people have been calling for the debts to be written off to allow these countries a real chance to spend their money on becoming more developed. The chances of it occurring appear minimal though because that would mean the developed countries losing their economic control over the developed countries.
Some countries have grouped together in an attempt to make trade cheaper and easier between them, whilst increasing taxes on products brought in from outside the block. Although they improve trade between the member countries, they do not necessarily help the development of world trade.
Three examples of trade blocks are:
The European Union: The EU is made up of 15 member countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Irish Republic, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the UK.).
The EU began as a group of only 6 countries in 1957 and has expanded ever since. Border controls between the countries are virtually non-existent now, and trade is almost exclusively between the 15 countries.
This has led to developing counties complaining that they cannot get fair access to the European market.
Mercosur: Mercosur is the trade group in South America. It has 4 full members (Argentina, Brazil, Paraguay and Uruguay) and 5 associate members, who may become full members in time (Bolivia, Colombia, Ecuador, Peru and Venezuela).
It is a relatively new trading bloc, having been set up in the late 1980’s and early 1990’s but already the benefits are being felt by the four full members as trade tariffs on most products have been scrapped. Trade between them has increased and will continue to do so.
NAFTA: The North American Free Trade Association is the name given to the trade bloc made up by Canada, Mexico and the United States.
It was established in 1994 and broke new ground by incorporating MEDC’s and LEDC’s together. It aims to eliminate trade barriers, improve trade and increase investment, primarily in Mexico.
Many of the developing countries of the world rely on one or two main industries to sustain them. If these are affected by poor harvests, freak weather, recession or a change in demand, then the economy of the country can be severely damaged.
Islands in the Pacific and the Caribbean often rely on one crop, and increasingly the tourist industry for their income. However they are also in danger from tropical storms, which can, in 24 hours, destroy the entire crop and persuade huge numbers of tourists not to travel there.
The developed countries also try to control the prices of the products they buy form the developing countries, further disabling them if they rely on only one or two products.
MEDC’s benefit from the current trade balance. They have huge trade surpluses and continue to be the most economically developed countries in the world.
The MEDC’s continue to control most of the world’s manufacturing industry, meaning that they gain from the profits made.
LEDC’s are disadvantaged by the current trade balance, as they are often in debt with trade deficits. LEDC’s still mainly rely on the export of primary raw materials, which do not fetch as much money as the manufactured products that they become.
The gap between “haves” and the “have-nots” seems to be increasing all the time.