Why a trade boycott against Israel will unfortunately not work

Why a trade boycott against Israel will unfortunately not work
Why a trade boycott against Israel will unfortunately not work
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Belgian Prime Minister Alexander De Croo wants to impose a trade boycott of products from the territories occupied by Israel. He is looking for partners in the European Union to make this happen.

The proposal leads, at least to me, to mixed feelings. A good feeling on a moral level. Yes, we have to do something. The terrible military violence of the Israeli army that has been causing countless innocent victims for months must stop. It makes us desperate. Something has to happen. Such a boycott seems to be the answer. We have done something to stop the senseless violence.

But that moral good feeling is quickly exhausted when we try to answer the cool question of whether such a boycott actually works. And there the answer is unequivocal. Usually boycotts don’t work. And that will most likely be the case if our Prime Minister succeeds in getting the European Union behind his boycott plan.
The fundamental reason why boycotts don’t work is that they create exceptional profit opportunities for the middlemen (traders) who try to circumvent the boycott.

Scarcity

Why? A boycott results in a decrease in the price that the exporter receives for its products subject to the boycott. When Belgian pears were no longer allowed to be exported to Russia, their price in Belgium fell. The opposite problem arises in the importing country. There, the price of the imported good rises because the boycott creates scarcity. This means that the margin between export price and import price of the traded good under boycott increases.

That profit margin then attracts traders who, like sharks attracted to blood, take advantage of these new profit opportunities. They can buy the product under boycott cheaper than before and can sell it at a higher price than before. And sharks never stop after smelling blood.

It sometimes takes to find new routes, but eventually they are found. There are always countries that do not participate in the boycott, or close their eyes to it. The big commodity traders of this world (Glencore, Trafigura) have become rich by specializing in trading goods that fall under one boycott or another. They buy those goods at a discount in the exporting country and sell them (using a roundabout route) in the importing country.

This also happened in a spectacular way with the trade boycotts with Russia. Direct trade between the European Union and Russia has come to a standstill. But guess what? Trade between European countries with countries such as Kazakhstan and Turkmenistan has increased spectacularly. And exports from those countries to Russia have risen just as spectacularly. Trade with Russia has shifted. And the middlemen have become richer.

That will also be the fate of a possible trade boycott with Israel. The dates that are subject to boycott will be sold elsewhere. The profit motive of the intermediaries will ensure this.

Discord

For me at least, that cool economic analysis leads to an inner discord. I wish something would happen to force Israel to stop the massacre in Gaza. At the same time, I know that a trade boycott will not achieve that goal. I can close my eyes to that harsh reality. I can perhaps take comfort in the idea that the boycott will affect Israeli settlers in the occupied Palestinian territories. But that is also not certain. It is possible that Palestinian residents in the occupied territories will be particularly affected.

How can we escape this division? Close our eyes and wallow in moral satisfaction that we have done something to drive evil out of this world? The temptation is great to do this.

If I have to choose between the morality of good intentions and the morality of results, I choose the latter. And then I think that such a trade boycott mainly serves to appease our moral concerns. Not so. Although I remain torn internally.

The article is in Dutch

Belgium

Tags: trade boycott Israel work

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