The Flawed Mirror of International Trade | How Broken Biases Misguide Decision-Making

When I say international trade what is the first thing that comes to your mind?

Language, after all, is created and built upon the mental and emotional associations we have with a word or a concept. It has very little to do with the legal or dictionary definition of what the word actually means.

Similarly, underlying the foundation stone of our worldview is a complex interplay of mental and emotional associations regarding a country or an ethnic group. It has very little to do with the prevailing market conditions, statistics or what it’s like to live, work and trade there.

Most of us do not come to accurate conclusions regarding how trade affects us personally. We do not choose to support or oppose trade due to a potential gain or loss. Instead, for the vast majority of us, our views are shaped by trade’s perceived effects on our country, our feelings about the trading partner, the political party that happens to be in power as well as the general sentiment regarding what the world is like beyond our ‘safe and secure’ borders.

For the vast majority of us, our opinions about who to trade with are rooted in human psychology; and not in any factual understanding of how international relations work in practise. Our attitudes, prejudices and preferences toward the people and countries we perceive as different to ourselves significantly influence our opinions–no matter how well or ill-informed our opinions may be.

For international trade to actually occur, we need to understand whether it is possible to cooperate for mutual benefit. If we view other nations (and quite possibly each other) with suspicion and distrust, then cooperation is not possible, especially with those who seem different from ourselves.

For this reason, it is not surprising that racial prejudice turns out to be one of the strongest deterrents to trade.

What if I told you that it is not self-interest, but self-delusion that leads to poor economic decisions? What if we are making decisions based on our perceptions of a people; as opposed to who they really are? What if we are falling for the way a country is marketing itself as opposed to the way it actually operates?

Our willingness to trade with a country, as well as another individual, depends on both our perception of reality as well as on a multitude of factors–the most important of which is trust. Trust, in turn, is forged by perceived–as opposed to actual–similarities. The more similar we perceive that a given market is, the more positively it will rank in our minds as a potential trading partner.

The entire basis of trade of any sort, regardless of whether it is international or local, is whether or not we can exchange value. For us to exchange value, someone must have something we don’t have and wish to have–and vice versa.

By consistently choosing partners who are similar to us; we are, in a way, limiting the exchange of value that can take place with those who are complementary to us. While common ground is important to creating that initial connection, it is in no way an accurate gauge of whether or not the trading partnership can commence or even last.

Part of the problem in accurately collecting and collating data is the misguided way in which the media are covering these stories. People from certain demographics and cultural backgrounds are typecasted into media narratives which they can’t escape from; no matter how many personal stories or statistics we feature that are contrary to the perceived reality.

Many people support and even endorse the view that trade, in effect, ‘transfers’ or relocates your job to a foreign market. But this is a simplistic and narrow way to think about trade. If we do not take the time and effort to equip ourselves with knowledge, data or even experience of what we stand to gain or lose from a potential trading partner–how can we hope to reach any informed decision about which market to enter?

Is prejudice, with all its perils, going to form the basis of our economic policies?

Journalists tend to focus on stories that feature ‘the average person’ losing their jobs as a result of trade; rather than the multifaceted ways in which a nation can benefit from globalisation. For us to benefit from globalisation, we need to see the world as an interconnected whole and not as fragmented landmasses or groups of people who are all competing with one another. It’s near impossible to effectively cooperate with people whom we believe we are competing with.

More often than not, the most common explanation people give for why we should not trade with a particular nation is rooted in the psychology of trust. What or who we think we can trust–is not always who or what we should trust.

My own experiences around the globe have taught me that, quite often, it is the cultures that are most similar to each other that are in complete denial of the fact that they are similar. This sorry state of affairs creates and recreates itself in just about every region. Regional rivalries with our neighbours is nothing new.

The ‘enemy’ is not always the foreign entity that emerges from far away, but the one who emerged from the same womb or the same seed. It is, more often than not, the branches of the same tree that end up fighting each other.

Scholars tend to dismiss the idea that human psychology and poorly informed opinions are a significant factor towards international commerce. But for a voting population, whether or not they support trade with another country parallels their own personal decisions. They want a trading partner that appears similar to themselves.

It is this extremely flawed and biased reasoning that leads to many of the same problems in international trade that it does in interpersonal relations. People are less likely to want to interact with people or countries that they perceive to be different from themselves. They do not trust those whom they consider ‘unfamiliar’. Due to a lack of trust, people may miss out on many potentially beneficial economic opportunities.

It would be both foolish and extremely short-sighted to downplay or dismiss the role that emotions play in informing our decision-making. Following on from that, it would be equally foolish and short-sighted to make decisions solely based on our flawed perceptions and irrational emotions. It is undoubtedly a recipe for economic disaster.

So what’s the solution?

One of my favourite past times and hobbies is studying gems. I’m not talking about acquiring jewellery here, but the actual story of how a gem is discovered, polished and brought to market.

Just the other day, I came across a diamond in its raw form. It was still lodged in a rock and to the untrained eye, it would have looked like any other worthless rock. But to a miner–to a person who is seeking economic opportunities–it would have looked like a rare and opportune find after a long journey of nothing but worthless rocks.

But finding the rock is not enough. A master artisan must still carve it and polish it to bring out its true beauty.

The same could be said of international trade relations. Finding a potential partner is not easy, especially if we judge things by appearance and cannot differentiate the worthless rocks from the valuable ones that cleverly conceal diamonds. We need to put in a lot of work, effort and time to bring out the shine and sheen of what lays within.

The bottomline is–we cannot do that if we only ever look skin deep.