Deterioration of international terms of trade

Unequal exchange in trade
Decline in trading position of countries

Nature

The long-term increase in the price of manufactures which developing countries must import has been accompanied by static prices or price declines for many primary commodities, which are their main export. This deterioration in the terms of trade (a unit value index of exports divided by unit value index of imports) is most visible when the relationship is traced back to the early post-war period; this shows that developing countries are decreasingly able to import goods from funds generated by their exports.

Background

The deterioration of international terms of trade emerged as a global concern in the early 20th century, when economists observed persistent declines in the relative prices of primary exports from developing countries compared to manufactured imports. This trend gained prominence after the Great Depression and was systematically analyzed in the 1950s by Prebisch and Singer, whose findings spurred international debate and policy responses, highlighting the vulnerability of commodity-dependent economies to external market fluctuations.

Incidence

Nine times the amount of export beef required to import one barrel of oil was needed by developing countries in 1981 than in 1971. Profits from one ton of bananas bought a steel bar in 1970; in 1980 it paid for half a bar of steel.

Claim

The deterioration of international terms of trade is a critical global crisis that cannot be ignored. It relentlessly undermines the economic stability of developing nations, deepens inequality, and perpetuates poverty. This unjust imbalance allows wealthy countries to exploit poorer ones, stripping them of fair value for their exports. Immediate, decisive action is essential to restore equity and ensure sustainable development for all. Ignoring this problem is both reckless and morally indefensible.

Counter-claim

The so-called "deterioration of international terms of trade" is vastly overstated and hardly a pressing issue. In today’s globalized economy, countries adapt rapidly, diversify exports, and benefit from technological advances. Market forces naturally correct imbalances over time. Obsessing over terms of trade distracts from more urgent challenges like innovation, education, and infrastructure. Frankly, this topic is a relic of outdated economic thinking and deserves little attention in modern policy debates.