Neglected negative consequences of using exports to earn foreign exchange

Zhang, Shuaishuai; Yang, Lidan; Cao, Shixiong Article Neglected negative consequences of using exports to earn foreign exchange Research in Globalization Provided in Cooperation with: Elsevier Suggested Citation: Zhang, Shuaishuai; Yang, Lidan; Cao, Shixiong (2023) : Neglected negative consequences of using exports to earn foreign exchange, Research in Globalization, ISSN 2590-051X, Elsevier, Amsterdam, Vol. 7, pp. 1-7, https://doi.org/10.1016/j.resglo.2023.100148 This Version is available at: https://hdl.handle.net/10419/331075 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/bync-nd/4.0/). Neglected negative consequences of using exports to earn foreign exchange Shuaishuai Zhang, Lidan Yang, Shixiong Cao * School of Economics, Minzu University of China, No. 27, Zhongguancun South Street, Haidian District, Beijing 100081, PR China ARTICLE INFO Keywords Exports Foreign exchange Environmental degradation Regional development gap Trade balance ABSTRACT The rapid growth of international trade has promoted equally rapid economic development and globalization. It has also brought some problems. To earn foreign exchange from other countries, some countries have adopted export tax rebate policies and other subsidies to enhance the international competitiveness of their products. However, earning foreign exchange from exports to other countries has also caused harms that have been neglected by many economists. To describe these harms, we studied the impact of transitioning from a completely export-oriented trade strategy to a strategy that mitigates trade’s negative impacts by considering the environmental damage associated with huge export profits. Behind the booming export earnings lies a continuous loss of real domestic wealth. Importing raw materials and exporting processed products also creates large amounts of pollution and wastes, and contributes to continuous degradation of the exporter country’s environment. It also widens the development gaps between and within countries. The core goal of socioeconomic development is to improve the livelihood of the people, not to hoard other countries’ currencies. Balancing international trade therefore represents a necessary foundation for sustainable international trade, and this goal is jeopardized by excessive exports that unbalance a country’s international trade. Currency can become an invisible tax imposed on its users through depreciation caused by excessive issuance of the currency. The greater a country’s foreign exchange reserves, the greater the loss of real wealth. Therefore, to promote socioeconomic development and mitigate the problems caused by an excessive emphasis on exports, we should protect and enhance the vitality of markets (e.g., by eliminating export subsidies wherever possible) to balance exports and imports. Introduction Trade is one of the core means of promoting socioeconomic development, and in the past 30 years, China’s total imports and exports have risen from US$0.1 ×10 12 in 1991 to US$6.1 ×10 12 in 2021, an increase of about 61 times (National Bureau of Statistics, 2022). In contrast, the total imports and exports of the United States, one of the world’s major economies, rose from US$0.9 ×10 12 in 1991 to US$4.7 ×10 12 in 2021, an increase of 5.2 times (World Bank, 2021). The rapid growth of international trade has not only promoted rapid development of the global economy, but has also promoted globalization, bringing great benefits for the development of human society. It has also led China’s trade surplus to grow from US$4.4 ×10 9 in 1992 to US$0.7 ×10 12 in 2021 (UN Comtrade Database, 2022). Since the American economist Simon Smith Kuznets popularized the concept of GDP in 1934, economists have included a country’s international trade surplus in the GDP calculation model. As a result, many countries, including Japan, South Korea, and China, have regarded the earning of foreign exchange from exports as a primary strategy of their economic development because development is typically defined in terms of GDP growth (Adams and Gangnes, 1996; Jiang et al., 2021; Faltermeier et al., 2022). For example, exports accounted for 19.8% of China’s GDP in 2022 (CPGPRC1, 2023; CPGPRC2, 2023). However, Kuznets noted the inability of this indicator to measure welfare (i.e., it does not reflect the difference between the quantity and quality of growth). When international trade moves beyond a barter system, gold or other valuable resources are used as money and as a standard for exchanges of currency (Wang and Lee, 2022). Under these circumstances, such a development strategy may not be a problem because trade increases currency reserves and, thus, the buying power of the trading countries. However, in 1971, the United States withdrew from the 1944 Bretton Woods system, which had been intended to regulate the international monetary system, after eliminating pegging of the U.S. dollar to the price * Corresponding author. E-mail address: [email protected] (S. Cao). Contents lists available at ScienceDirect Research in Globalization journal homepage: www.sciencedirect.com/journal/research-in-globalization https://doi.org/10.1016/j.resglo.2023.100148 Received 11 July 2023; Received in revised form 12 August 2023; Accepted 13 August 2023 Research in Globalization 7 (2023) 100148 2 of gold in 1933, and the nature of international trade changed. Thereafter, nations were required to earn other countries’ currencies to purchase the products of those countries, and acquiring reserves of these currencies became a primary goal of a country’s trade strategy (Malay, 2019). The economic security provided by a large trade surplus has therefore been highlighted (Dix-Carneiro and Traiberman, 2023). However, real wealth should be measured by the health, safety, and contentment of a country’s citizens, and is not obtained through trade itself or by possessing gold. Since the United States withdrew from the Bretton Woods system, China, Japan, and South Korea, the three countries with the fastest trade surplus growth, have seen a dramatic expansion of their trade surplus, although China has shown far greater growth than Japan and South Korea combined (UN Comtrade Database, 2022; Fig. 1). The cumulative amount of foreign exchange earned by China, Japan, and South Korea during the 30 years from 1992 to 2021 was US$5.9 ×10 12 , US$1.3 × 10 12 , and US$817.3 ×10 9 , respectively. However, the regions that have benefited most from international trade seem to have mostly neglected the harms that lie behind these impressive statistics. In this paper, we describe some of these harms that have been created by focusing too strongly on the goal of increasing foreign exchange through international trade. These hazards include sacrificing the exporter country’s environment and exporting products with low value-added, resulting in lock-in of the exporter’s domestic industrial structure and making it very difficult to improve the industrial structure. In addition, exporting of a country’s non-renewable natural resources can lead to depletion of those resources, creating a risk of future impoverishment of the country. A novel contribution of this paper is that we examine the impacts of changing from an exclusively export-oriented trade strategy to a strategy that mitigates the negative impacts of trade by aiming for balanced trade rather than large export profits that neglect the associated environmental and other damage. The development of foreign trade inevitably affects the ecological environment through side-effects such as increased emission of greenhouse gases and widespread production of smog. When a country’s proportion of global foreign trade increases, it also increases the exporter’s share of the pollution emissions embodied in the trade process (Sato, 2014). Our goal is to attract the attention of more economists and politicians to this problem in the hope that this will promote efforts to mitigate the damage. Harmful foreign trade policies Export tax refund policies To obtain reserves of the currencies of other countries, countries such as China, South Korea, and Japan have introduced policies under which the government refunds some or all of the taxes levied on enterprises when they export products (Chen et al., 2006). In this approach, the government taxes the US$ earnings of a company that exports goods to the U.S. and retains some or all of that tax as foreign reserves; it then compensates the company with tax refunds and other incentives. For example, in 1985, China’s State Council issued a circular on encouraging the production of export products to increase the country’s GDP and earn foreign exchange. The specific provisions are available from their Web site (CPGPRC3, 2020). In summary: First, the government implemented a tax rebate system on 1 April 1985 that subsidized exporters. During that period, an export tax rebate strategy focused on a product tax, a value-added tax, and a consumption tax, and the adjustment was mainly made to offset taxes by the central and provincial governments. Second, the government accumulated foreign currency reserves by taxing exported products based on the mechanisms that were implemented in 1985. In addition, the “bottom three-seven” sharing method was implemented. Under this method, 70% of the taxes collected on foreign exchange was allocated to the central government’s reserves and the remaining 30% was retained by the local government. This division of the revenue was retained until the policy changed in the future. The regulations also provided that half of the 30% foreign exchange earned by local governments would be distributed to enterprises that produce or supply products. All regions and government departments were required to ensure that the correct proportion of the money was allocated to the central and local governments and to enterprises. Third, it remained necessary to meet the conditions specified in the central government’s current 5-year plan and the leaders of the central government and local government were required to meet governmentmandated quotas for transfers of foreign exchange. Any exporter that was required to meet a government quota was allowed to make transfers through the Bank of China. If the exporter did not need to use the foreign exchange they had earned, then each US$1 that they saved in China’s central bank (to increase the bank’s reserves of that currency) would be rewarded with a payment of 1 RMB. Fourth, the plan proposed to implement an export incentive system. Except for special economic zones and the export of petroleum, coal, and military products, which were controlled by the central government rather than by private enterprises, exporters or suppliers of export products would be awarded 0.03 RMB for every US$1 beyond their export earnings in 1985; if an enterprise exceeded the export earning performance in 1985, then for each additional US$1 they earned, they were rewarded with 0.10 RMB, and the policy was to remain unchanged by the government to another policy for at least 3 years. Fifth, to encourage export-oriented enterprises to expand their exports, the state allocated a small amount of additional funds for foreign trade in addition to the funds allocated for reducing or sharing a decrease in foreign exchange. This approach was mainly used to reward exporters that had achieved remarkable increases in exports and in foreign exchange revenues or that had made remarkable achievements in developing new products and improving the quality of export products. As long as the goods produced by an enterprise could be exported to the international market, the government would reduce the enterprise’s taxes to increase the international competitiveness of the domestic goods. Obtaining foreign exchange and even buying resources from the international market to process domestically into products that were then exported to the international market is referred to as the “two ends outside” method (Zhong et al., 2022). Fig. 1. Cumulative trade surpluses of Japan, South Korea, and China from 1992 to 2021. Source: UN Comtrade Database (2022). S. Zhang et al. Research in Globalization 7 (2023) 100148 3 The dependence of some countries on the US market after World War II After World War II, West Germany, Japan, and later China all used globalization to take advantage of cheap production costs to export as much as possible to the US market, thereby beginning the process of accumulating foreign reserves, and particularly U.S. dollar reserves. This kind of catch-up model, which relied heavily on the US market, was problematic; on the one hand, it unbalanced the global economy, and on the other hand, it made these countries heavily dependent on exporting to the United States to grow their foreign trade. As a result, this promoted lock-in of their industrial structure. Due to the barriers to entry into the U.S. market, such as the import quotas and duties experienced by some Chinese industries, the large amount of money generated by the export trade could be allocated to measures such as export subsidies that mitigated the effects of these barriers, resulting in more fair and open global trade. Allocating a large amount of funds to develop a relatively fair and open foreign trade can be an important engine for development. However, when an exporter country has trade frictions with countries such as the United States, an economic growth model that relies heavily on foreign trade will increase turbulence in the domestic economy as a result of the importer country’s efforts to protect its own industries. Damage caused by the strategy to earn foreign exchange Although the 1985 policy has dramatically promoted China’s international trade, cultural exchanges, and socioeconomic development, it has also led to a harmful trade imbalance, especially when China’s trade surplus became excessive and China gained more foreign currency than the amount required by normal production and living activities. This issue has been ignored by most politicians and many economists. The harms include a loss of wealth, regional environmental degradation, and widening of the gap in regional development (Murshed, 2022). Loss of wealth concealed by the magnitude of the economic growth Since 1971, the currencies of countries around the world have not been based on the gold standard or on another tangible object that replaces gold (Kaufmann, 1993). International currency depreciation and inflation have therefore become common problems worldwide because a nation’s currency is supported by intangible factors such as belief in the currency issuer’s stability, and that confidence is not always justified (Ferrer, 2013; Patro et al., 2014; Cerra, 2019). The United States is the world’s largest economy, and the US dollar holds a strong position in international trade. Since the reform and opening up to the West in 1978, China has become the world’s second-largest economy, and the RMB has gradually become an important currency in foreign exchange transactions. The UK was the earliest industrialized country in the world, and the pound once dominated the international financial industry. After World War I and World War II, the economic status of the UK continued to decline. However, for historical reasons (i.e., the global dominance of the U.K. before the 20th century), the UK’s financial industry remained highly developed, and the pound still had a strong position in foreign exchange trading. Fig. 2 shows the GDP and currency issuance by the United States, China, and the United Kingdom in current local currency units from 2000 to 2020. (Here, we define the “current” units as the value of money in a given year, without adjustment for inflation.) For example, in current local currency units, the GDP of the United States in 1977 was US $20.8 ×10 12 and the broad currency issuance was US$14.7 ×10 12 (World Bank, 2021), which represents a ratio of 0.7. (Here, we define the broad currency issuance as the sum of the M1 supply plus demand deposits and time deposits of commercial banks.) Similarly, in 1977, China’s GDP was 3.3 ×10 12 RMB and the broad currency issuance was 0.9 ×10 12 RMB, so the corresponding ratio was 0.3. In addition, the UK’s GDP in 1977 was £1.5 ×10 12 and the broad currency issuance was £0.5 ×10 12 , which represents a ratio of 0.3. However, the U.S. GDP in 2020 was US$21.1 ×10 12 and the U.S. broad currency issuance was US $21.5 ×10 12 , which represents a ratio of 1.0. In 2020, China’s GDP was 101.4 ×10 12 RMB and its broad currency issuance was 218.7 ×10 12 RMB in current local currency units, which represents a ratio of 2.2. In 2020, the U.K.’s GDP was £21.1 ×10 12 in current local currency units and its broad currency issuance was £34.5 ×10 12 , which represents a ratio of 1.6. Fig. 2 shows that the rate of currency issuance is growing faster than the economic growth rate, which means that the foreign exchange earned through export sales continues to depreciate as the money supply increases. Thus, despite the prosperity suggested by GDP values, the seeming prosperity generated by foreign exchange earnings from exports represents a continuous loss of real wealth by the exporting country. East Asian countries have long relied on the domestic market in the United States due to its huge demand and its huge ability to consume other countries’ production capacity and the ability of countries that exported goods to the U.S. to earn a correspondingly huge amount of foreign exchange. However, such large trade volumes have significant environmental costs. For example, China’s economic development strategy ignored the high costs of its production for the environment and workers (i.e., it treated these adverse effects as externalities). In addition, due to the significant increase in foreign trade through exports and the resulting GDP growth, China accumulated a large amount of foreign exchange, but these reserves have not improved the wealth, health, or contentedness of Chinese citizens. In particular, this so-called wealth did not increase consumption in China’s domestic market. Those currencies mainly flow out of the United States and the United Kingdom and into consumer countries that buy their exports, and are not needed to pay for access to these products with real labor and real resources. Instead, China exports its real wealth abroad to earn other countries’ currency. The currency issuer can obtain valuable goods in the international market at little cost by issuing more of their fiat currency. However, there is no guarantee that they will issue more currency. Thus, countries whose economies rely mainly on foreign exchange earnings from exports are in trouble if importer countries change their monetary policy. Regional environmental degradation Because export products are not consumed by the people who produced them, the economic externalities associated with producing these products, such as air and water pollution, endanger the health of the exporter’s own people, who bear the costs of the creation of this wealth Fig. 2. Changes in GDP and broad currency issuance of the United States, China, and the United Kingdom from 2000 to 2020, with values calculated in current local currency units. . Source: World Bank (2021) S. Zhang et al. Research in Globalization 7 (2023) 100148 4 (Duan and Yan, 2019; Duan et al., 2021; Baajike et al., 2022). Fig. 3 shows an example based on a major international commodity (iron). At first glance, the trends seem promising. The quantity of iron ore imported by China increased from 7.2 ×10 6 t in 1979 to 1.1 ×10 9 t in 2017, an increase of more than 152.8 times. China’s share of global crude steel production increased from 13.6% in 1997 to 52.9% in 2021, an increase of 3.9 times (Worldsteel, 1998–2022). However, in 2013, when China’s crude steel production accounted for 48.5% of the global production, Hebei Province accounted for 24.2 percentage points of China’s 48.5% share of global production, and air pollution was the worst ever recorded. The annual average values of fine particulate matter (PM 2.5 ) in the cities of Xingtai, Shijiazhuang, and Baoding in Hebei Province in 2013 were 197.7, 181.7, and 168.8 µg/m 3 , respectively (Environmental Monitoring of China, 2021), which are all more than 17 times the recommended international standard. At the same time, the emission of all industrial waste gas was 138 × 10 12 m 3 in 2000, and increased to 685 ×10 12 m 3 in 2015, an increase of nearly 5.0 times (Fig. 4). The National Bureau of Statistics (2022) reported that the output of all industrial solid waste was 0.8 ×10 9 t in 2000 and increased to a peak of 3.3 ×10 9 t in 2015, an increase of 4.1 times. The discharge of all industrial wastewater was 1.9 ×10 6 t in 2000 and 2.0 ×10 6 t in 2015 (i.e., only a small increase), but the discharge of industrial wastewater increased from 2000 to 2007 and decreased from 2007 to 2015. The Chinese government encouraged enterprises to purchase raw materials from the international market through an export tax rebate policy. After processing, value-added products were then exported but treatment of the waste was left to the domestic market, and the products were then sold to the international market at a low international market price. The resulting environmental costs and costs to residents’ health are not included in the price of these goods. To obtain monetary subsidies from other countries, some developing countries such as China and India (Hu et al., 2020) actually import garbage from the international market so they can extract valuable materials, although the driving force behind this trade is the desire for the waste-producing countries to avoid the need to pay for waste treatment. The human and environmental harm caused by the huge amount of waste has not attracted sufficient attention from environmentalists and economists. This is a form of environmental exploitation of developing countries by rich countries. In 1995, China began to import solid waste. Starting in 2021, China comprehensively banned the import of solid waste, prohibited the import of solid waste in any form, and prohibited the dumping, storage, and disposal of solid waste from overseas (CPGPRC4, 2020). In 1995, China imported 4.5 ×10 6 t of foreign garbage, compared to 46.55 ×10 6 t in 2016, an increase of more than 10 times. In late 2017, shortly before the laws governing import of foreign garbage were tightened, China imported 42.27 ×10 6 t of foreign garbage. On 1 January 2018, the import of foreign garbage was completely prohibited, but in that year, 22.63 ×10 6 t were still imported, and only then did the amount of imported foreign garbage begin to decrease (CPGPRC5, 2020). Serious environmental problems forced the Chinese government to adopt an extreme strategy that no longer focused exclusively on economic development and instead focused on environmental protection. In 2013, the Chinese government chose to focus on the prevention and control of air pollution, and set up a cooperative mechanism for the prevention and control of air pollution in the Beijing–Tianjin–Hebei region and its surrounding areas, as well as including the Yangtze River Delta (i.e., this was a separate region covered by a specific pollution control plan), and implemented a national coordination mechanism for the prevention and control of air pollution (National Bureau of Statistics, 2013). To obtain high-quality air through this mechanism, Beijing indirectly limited economic development of Tianjin and Hebei Province because Beijing already had a higher level of economic development than the other areas, and the new limits on pollutant emission prevented the other areas from expanding their production without affecting Beijing’s industries. This industrial adjustment had complicated consequences. China’s large population means that even a slight percentage decrease in an economic activity results in many people losing their jobs and thus, leads to high socioeconomic damage. For example, Tangshan, in Hebei Province, is an industrial city dominated by steel production. In 2010, the industrial value-added contributed by this industry accounted for 53.6% of Hebei’s GDP (Tangshan Statistical Yearbook, 2017); in 2015, it accounted for 50.8% of GDP, a decrease of 2.8 percentage points. A widening regional development gap China’s tax rebate policy for exported products significantly reduced the production and operation costs of export enterprises, but since most of China’s exports leave the country through coastal areas, this favored enterprises in coastal regions over enterprises in interior regions. It also Fig. 3. The amount of iron ore imported by China in the international market from 1979 to 2017 and the total crude steel produced by China in the world from 1997 to 2021. Source: Worldsteel (1998–2022). Fig. 4. China’s industrial exhaust and wastewater emissions from 2000 to 2015 and industrial solid waste output from 2000 to 2020. Based on the results of the second national pollution source survey, the Ministry of Ecology and Environment organized an update of the preliminary statistical data for pollution sources from 2016 to 2019. Data on industrial exhaust emissions and industrial wastewater emissions after 2016 are therefore not directly comparable to the values in the previous years. S. Zhang et al. Research in Globalization 7 (2023) 100148 5 encouraged domestic enterprises to migrate to coastal areas with good access to water transportation (which they saw as essential for international trade), resulting in excessive population accumulation and urban overdevelopment in coastal areas. The first hazard created by this trend was that enterprises in inland areas had more difficulty reaching export hubs on the coast and were therefore unable to benefit fully from the tax rebates, and the goods they produced were therefore not competitive with the subsidized goods produced near the coast. The resulting decrease in sales increased regional income disparities between inland and coastal areas. For example, the annual per capita disposable income of urban residents in Chinese inland areas such as Hunan Province and coastal areas such as Shanghai were 324 RMB and 406 RMB, respectively, in 1978, so the gap in per capita disposable income was only 82 RMB (National Bureau of Statistics, 2022). By 2020, Hunan Province’s urban annual per capita disposable income reached 41,698 RMB, versus 76,437 RMB in Shanghai, so the income gap increased to 34,739 RMB. Thus, the income gap had increased by three orders of magnitude. Under the global division of labor model, international trade leads to technological progress by exporter countries, which decreases employment and thus widens the wage gap among countries. Thus, this technological progress has caused trade to have a significant negative impact on China’s income gap. The characteristics of China’s foreign trade, with foreign investment as the main body and the materials-processing trade as the main form of trade, combined with uneven development in various regions of the country, means that trade is more likely than other factors to widen income disparities (Yuan, 2009). On the one hand, the export trade policy has widened the income gap between inland and coastal areas. On the other hand, based on the premise of substantial GDP growth driven by foreign trade exports, Chinese enterprises have accumulated a large amount of foreign exchange. However, Chinese enterprises do not share equally in the benefits of trade. China’s exporters are developing at different rates in different regions of the country. Under China’s political and economic context, the income inequality between urban and rural residents is also increasing as a result of export trade. This is because most of the exporters are located in urban areas, and draw workers away from rural areas, thereby reducing the labor pool available to increase rural prosperity. Increased exposure to natural disasters The second type of harm is an increased exposure to natural disasters created by the excessive populations and excessive urban concentration on seacoasts and the shores of large bodies of water (Fig. 5). The population growth rate of Eastern China has been significantly higher than those in Central and Western China. In 1953, Eastern China’s population was 1.3 times that of Central China and 1.3 times that of Western China (National Bureau of Statistics, 2022). However, in 2020, Eastern China’s population increased to 1.5 times that of Central China and 1.5 times that of Western China. Because most of Eastern China is located in a coastal area, it faces a higher risk of natural disasters such as flooding and tsunamis (Chen and Cao, 2013). The 2004 tsunami that struck Indonesia killed 156 ×10 3 people in Indonesia and surrounding regions (Wang et al., 2016), and may be the deadliest tsunami in the past 200 years. Similarly, the tsunami caused by the 2011 Fukushima Earthquake caused extensive damage in Japan. Although such disasters are rare, the world’s population who lives in coastal areas is at risk of such disasters. Moreover, rising sea levels caused by global warming are likely to flood many coastal areas and increase the damage caused by storms. Perspective GDP accounts for many but not all of the costs embodied in a country’s economic production activities, and is calculated based on the income earned by the entire society over a certain period of time (Qian, 2014). This calculation model includes the cost of export earnings, but also includes international trade surpluses, which represents doublecounting of those surpluses from international trade. This misleading model magnifies the economic significance of exports and decreases the economic significance of imports. In addition, it fails to account for the harm caused by the pollution produced by the export industries, which is treated as an externality borne by residents of the production areas. We therefore believe that this approach represents a serious macroeconomic error that should be reconsidered, since preserving this model allows developed countries to continue to exploit developing countries. The core goal of socioeconomic development is to improve people’s livelihoods, not to hoard other countries’ currencies, and the promotion of balanced international trade is necessary to mitigate the damage to these livelihoods caused by an excessive focus on exports (Mesagan et al., 2022; Stellian and Danna-Buitrago, 2022). Excessive exports lead to imbalances in international trade, causing contradictions and frictions between countries, but also causing the harms described in this paper that decrease the net benefit from this trade. To achieve the goal of improving human lives rather than increasing export income, China should consider alternatives to basing economic growth on GDP. In particular, it should reconsider the value of exports and consider alternative measures, such as increasing domestic consumption. Some developing countries, such as Vietnam, have insufficient governance of their money supply, and this has allowed international investors and business owners to take advantage of gaps in the financial policies of these countries to permit speculation that only benefits the speculators. Other exporter countries could modify China’s approach to work with their own financial system. Some countries either don’t understand or don’t take advantage of the difference between trade focused exclusively on exports and free trade. As a result, they blindly accept international currency transactions as if they were free trade, because they ignore import duties and export subsidies such as the ones described in this paper. For example, Yeltsin-era Russia adopted a blind belief in the power of the market, without accounting for the harm that could be done by speculators, thereby causing a collapse of the value of Fig. 5. From 1953 to 2020, the number of people living in the eastern coastal areas of China increased more than the numbers living in the central and western regions. Eastern China includes Beijing, Tianjin, Shanghai, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, and Hainan. Central China includes Shanxi, Anhui, Henan, Hubei, Hunan, and Jiangxi. Western China includes Inner Mongolia Autonomous Region, Shaanxi, Chongqing, Gansu, Qinghai, Xinjiang Uygur Autonomous Region, Guangxi, Sichuan, Guizhou, Yunnan, Tibet Autonomous Region, and Ningxia Hui Autonomous Region. There is disagreement over where to allocate three northeastern provinces, namely Liaoning Province, Heilongjiang Province, and Jilin Province, so we have not included those provinces in our calculations. Source: National Bureau of Statistics (2022). S. Zhang et al. Research in Globalization 7 (2023) 100148 6 the Russian ruble in the 10 years after opening Russia’s market to the world (Basdevant and Hall, 2002). Although depreciation of a country’s currency is potentially beneficial because it makes exports relatively less expensive and thereby increases earnings of foreign exchange, unstable currency exchange rates pose a threat to the country’s economy and financial system. Russia’s example provides historical evidence that countries that depreciate their own currency by hoarding other countries’ currencies are unlikely to succeed in the long term (Lehmann and Berglof, 2009). Controlling a country’s currency lets the issuer preserve the country’s sovereignty. In contrast, hoarding other countries’ currencies not only cannot bring real wealth, but also exposes the country to risks created by deflation of their currency and cannot guarantee the security of the country’s own national currency (Gangopadhyay, 2020; Wong and Wong, 2021). Trade is undoubtedly an important means of promoting social and economic development and is one of the driving forces of human civilization. However, politicians must understand that money earned through trade can become an invisible tax imposed by currency issuers on domestic users of the currency. The greater a country’s foreign exchange balance, the more real wealth it loses. Politicians should understand that to ensure the security of their national currency, they must avoid issuing too much money while cracking down on monopolies and on speculation by international and domestic business owners and investors. Politicians should implement equitable regional domestic development policies to ensure stable economic development for the whole country (Alessandria and Choi, 2021); for example, China should improve its transportation infrastructure and subsidize transport costs so that enterprises in Central and Western China can afford to transport their products to coastal regions and can compete on more even terms with enterprises in Eastern China. Trade egalitarianism (i.e., free trade that is largely unaffected by differences between countries in government subsidies and import duties) should be promoted in the international market to avoid the development of excessive trade surpluses and to prevent developed countries from harvesting a developing country’s wealth. At the same time, countries must avoid exporting more of their national currency to other countries so as to prevent financial oligarchs from profiting from speculation to benefit themselves at the expense of other countries. In addition, balanced regional development and international trade are the basis for securing a country’s ability to control its own development. These measures will begin to mitigate the neglected negative consequences of using exports to earn foreign exchange. The political leaders of a country must understand that from an economic perspective, the goals of national development are to increase the disposable income of residents, improve their quality of life, and improve the quality of education. Markets, government, and science and technology are three key dimensions of human civilization, and are also the core driving forces for modern social and economic development. Modern society relies on market competition, government services, and scientific and technological innovation to maintain its development momentum. The lack of any one aspect can unbalance or even stop social development. Therefore, to promote social and economic development and mitigate the problems that have resulted from an excessive emphasis on exports, we should protect and enhance the vitality of markets (e.g., by eliminating export subsidies wherever possible), improve the ability of governments to provide services to citizens (i.e., to mitigate the damage caused by an excessive focus on exports), and increase investment in scientific and technological innovation (e.g., so that provinces in Central and Western China are harmed less by the high transportation costs for their products to reach coastal areas for export). Author contributions S. Cao designed the research; S. Zhang analyzed the data; S. Cao, S. Zhang and L. Yang wrote the paper. All authors have approved the paper for submission. The authors declare no conflict of interest. Disclosure statement The authors declare no conflict of interest. The opinions expressed here are those of the authors and do not necessarily reflect the position of the Government of China or of any other organization. We consent to publish this article in your journal and to transfer its copyright to the publisher once the manuscript has been accepted. We consent to participate the research and write the paper. Ethical statements All procedures performed in this study were in accordance with the ethical standards of the university. Ethical clearance and approval were granted according to the Declaration of Helsinki and the UNESCO Universal Declaration on Bioethics and Human Rights. Availability of data and materials Data sharing is not applicable to this research as no data were generated or analyzed. The data was obtained from the literature. Therefore, we have not provided a Methods and Materials section. Funding There was no project-specific funding for this study; it was based on the authors’ research interests. 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