Why Terrorism? Its Effects on Trade

Why Terrorism? Its Effects on Trade

David Bergeron

March 11, 2005

EDGE

In recent years terrorists have become increasingly powerful in the eyes of the world. The ability to grab the attention of entire nations and send a feeling of utter fear down through the bodies of millions is a very powerful and dangerous act. All throughout history different people have been using some form or terrorism to act against their enemies. The three basic principles that explain terrorism and its threat today are; power, globalization, and religion. These three components are what fuel the fire and create such a powerful incentive for those willing to take the risks to implement as a cowardly attempt of making changes. As power, globalization, and religion play into explaining why it is that terrorism is so affective today I will also analyze the influences that terrorism is having on economies around the world. Trade is altered and the incredible costs that are accumulated from a terrorist act. By explaining why it is these terrorists use the techniques they do you will better understand the costs of terrorism and how destructive it can be on a community in a variety of ways.

Power is the driving force behind a large majority of terrorist actions. Ever since the beginning of mankind certain individuals have viewed themselves as chosen and had some kind of divine right to rule over others. One of the defining characteristics of humans is this exact phenomenon. No other creature on earth will go to such great lengths to achieve power. Humans in history like Stalin and Hitler have literally killed millions of people in order to perpetuate their power over others. The problem with people wanting so much power and to have the ability to control is that many innocent people who are not involved at all with preventing a person from achieving the power they strive for will get caught up in the middle and killed for no reason. Terrorism does just that. Generally when party A wants to get revenge against or affect the lives of part B, they will attack party C. Party C being a small representation of party B as a whole. For example when Al Queda(party A) wanted to attack the United States Government(party B) in particular the most effective way of doing so was to take over a few airplanes with innocent people on board(party C) and crash them down into other buildings killing other innocent non-policy making Americans. The idea being that by attacking a third party that is not involved directly creates fear in the heart of not just military and government personal but every American can now consider themselves a potential target. This kind of terrorism know as “terror violence” creates much more panic and can have much deeper effects in the way it changes the every day lives of those who are attacked. Considering that the human desire for power in some sick individuals is so great that they will go to any lengths in order to achieve what they want leads you to believe that being able to create an event in which destruction will be caused by the initial blast or terrorist attack, and the aftershock from the event will echo all through out society and change the way that common people live their every day lives is a dream come true for some one so deranged and focused on achieving power.

Globalization of the world is a phenomenon that has come to define a new era. From the way that we do business and the trade of money, to politics, travel, and the internet. The world is becoming a much smaller place. Boarders and oceans that once divided us physically have been broken down with the creation of the internet, cell phones and satellite TV. With this progression in technology focused so strongly on connecting us with others that we used to never connect with comes a dangerous threat of using this technology to do evil things. Terrorists are now able to communicate and coordinate better then ever. Being able to host website dedicated to furthering their cause and putting very bad ideas into the heads of those that visit their website is a dangerous slippery slope. We all know that freedom of speech is something that is valued very highly in the United States. But when that speech is about different ways to make a home made car bomb that is where the line becomes a little fuzzy. Where does individual liberties stop and protecting the innocent begin. Also with the creation of the internet and the ability for terrorist groups to more easily communicate and recruit comes the simple access to information. With so many people out there posting research and cutting edge technology on the web access to vital information regarding such things like biological and nuclear weapons could end up falling into the wrong hands and potentially killing millions of innocent people. So while the globalization of the our society is very good and productive in so many different forums the reality remains that there is a risk involved and we are taking a chance by making both communication and information so easily accessible. Indicators that terrorism itself is becoming more global can be seen through a number of telling signs. Fist off violence has become much more indiscriminant. The easiest way to see that is looking at something like 9-11 where the people that were being killed in the airplanes and in the towers had nothing to do with any of the actions taken against Al-Queda in the past. The attackers by the same token had no idea who or how many people were going to be in the buildings when they hit, clearly demonstrating a very indiscriminant attack. Second it can be said that we have seen a shift to a more global dispersion of targets and victims. People used to attack primarily on the same continent and within more local regions. We are now seeing groups traveling across continents to attack a target. The third change is an ideological one in the movement from more political motives to now being more religious. Originally people were committing acts of terrorism in the name of a political belief, but now the pendulum has swung to a more religious reasoning to motivate the acts of terrorism. Forth we have seen the demands by the terrorist become more vague and hazy. Indicating that there is something bigger then just the act and a response. The terrorists are looking for that fear and insecurity in the population as their payment. Fifth the organizational identities have become harder to identify. With the access to so much information now on the internet radical groups are aware of their identity within the world and can commit actions and crimes that do not traditionally reflect what many would expect from them. When a terrorist attack like 9-11 happened there was some ambiguity at first on who was responsible for the attacks. The final indicator that terrorism is becoming more global is the organizational shift towards an international network form. Terrorists are now able to recruit and delegate power and information on a much larger scale. They no longer have to all be in the same place in order to operate. They can be planted all over the world and strike much quicker because of that. While globalization continues to contribute to allow access of information and communication much easier and quicker to anyone in the world, religion is the final factor that has come into play as terrorists continue to gain momentum and power in the world today.

Religion is the third piece of the puzzle that can be used to help better understand why terrorists seem to be gaining so much power and confidence in the today’s world. Serving a higher God is something that humans have looked to do since the beginning of civilization. Being able to look to someone or something greater then one’s self for guidance and answers to a very confusing life bring comfort and provides security for humans seeking it. While there are a variety of different religions that people follow out there today, for the most part they all operate under the same basic structure. There is a God or set of Gods that have prophets or messengers that have the ability to pass on the messages and wishes of the Gods. As a follower of the religion a person is responsible for executing the wishes of the Gods regardless the situation. The Gods know what is best and therefore cannot be questioned. A great example of doing horrific damage in the name of a God was seen in the Holocaust. Hitler wanted to exterminate an entire segment of the population simply because of their religious affiliation. He claimed that it was his duty sent down to him from God. But considering how organized, efficient, and the support that he had for this cause you can see the influence religion can have on people. It can make them do incredible things to other humans and they will feel okay with it because it “is in the name of God.” Clearly Hitler was out of his mind to think that this was something that should be tolerated but the fact still remains that he killed millions of people in a form of terrorism. Today we are seeing many acts of terrorism in places like the Middle East. Suicide bombings have become the latest trend for Islamic extremists. As we heard in lecture the Islamic faith is something that have been very misunderstood particularly in the United States. Considering that only around ten percent of Islamic followers live in the Middle East it is unfair to stereotype all people living in the Middle East with the extreme fundamentalist Islamic followers. Religion is a key player in how terrorists view themselves and justify the acts that they do. By committing a crime in the name of a higher being or a God the actor is able to do so with a clear conscious knowing that they are not doing it for selfish reasons rather they are committing the act of terrorism against the “enemy” or “sinners” who defy the words of their God. Having terrorists that are willing to sacrifice their own lives on suicide missions makes them extremely dangerous and more importantly highly unpredictable. As a whole everyone agrees that terrorism is a nasty form of attack and involves innocent people who are defenseless. In a war you have trained soldiers on both sides prepared and expecting combat. When a soldier dies usually they have prepared for the idea of being killed in combat and will be recognized as a hero for dying while fighting for their country. But as a civilian who has no idea the attack is coming and not trained to know what to do if an attack begins to unfold is considered by most to be a cowardly way to wage war on another country. While it is quite clear that the damage done by terrorism is incredibly devastating both physically to the victims directly involved with the attack, it is also very psychologically devastating to the members of the community who now have to fear the they will be the next victims of another attack. The fear that is put into the lives of those who see themselves as potential targets can be a very debilitating frame of mind. This frame of mind can have a largely adverse effect on such things as trade and the economy. The second portion of this paper will focus on the effects terrorism has on trade.

When there is terrorism that has hit a nation the trade in that nation will suffer severely. The economic effects from something like 9-11 can be very significant and have lasting effects for many yeast to come. It has been shown that with the increased threat of terrorism there is a reduced amount of trade flow in and out of that country. “A study of over 200 countries from 1968 to 1979 found a doubling of the number of terrorist incidents decreased bilateral trade between targeted economies by about 6 percent.” (Nitsch and Schumacher, 2002). When you are talking about a place like the United States, which is one of the largest economies in the world, a 6 percent decrease in trade is billions of dollars. With the increased risk or presence of terrorism the costs of trade become significantly larger. Examples are insurances costs connected to transporting any kind or cargo, or even people are going to increase. Because there is the danger present of something happening on an airplane or a ship that is carrying valuable supplies to the country they become potential targets for terrorist and need to carry more insurance. The insurance companies end up charging higher rates to insure these loads and therefore raising the price of the goods that are going to be sold. It also creates a premium on carrying more inventory. If there were to be an attack and the airports and seaports were to be shut down no supplies will be able to get in or out for an unknown period of time. Having this risk present requires suppliers to carry a larger inventory in case a situation like 9-11 was to arise again. “Recent estimates indicate that if the United States has to carry 10 percent more in inventories and pay 20 percent more for commercial insurance premiums as a result of the increased terrorism threat, it would cost 0.1 percent and 0.3 percent of GDP or US$7.5 billion and US$30 billion per year, respectively.” (UBS Warburg, 2001). Developing economies, particularly those with internationally integrated production chains, would face relatively higher costs as a result of the fact that trade is a more important to their economies. One can almost be sure of the fact that if the United States were to be hit with another large scale terrorist attack that the smaller developing countries would likely have a greater negative impact on their economies then the United States. So many small countries rely on the trade between the United States for large portions of their cash flow. Also with trade being slowed down during times of terror the insurance on the cargo that he smaller countries would be sending to the United States would be greater. With the insurance companies not really knowing the state of the security in many developing countries they will be more inclined to do searching or imports at the U.S. boarders causing the price for insurance to ship into the U.S. to go up, putting a heavy burden on the smaller developing countries.

Along with trade being adversely affected from terrorism, investments and economic growth are hit very hard as well. Anytime there is a sense of uncertainty and question about the future people are generally going to shy away from investing a bunch of their money into a diverse portfolio of investments. With terrorist threats and actions comes a perceived risk about what kind of damage could potentially be done to assets and investments. Depending on the attack physical investments like real estate and artwork could be lost or at least be at risk of being lost. Or if enough damage is done to companies or elements of the stock market stock investments could take a turn for the worst and money could be lost. “Modeling the impact of security on private investment and growth in 53 developing countries from 1984 to 1995 shows economies can achieve significant benefits from reducing their security risks. In the short to medium term, this study found measures that increased economic security in relatively insecure developing countries to levels in best practice regions raised private investment by 0.5 to 1 percentage point of GDP. In the long term, these measures boosted economic growth by 0.5 to 1.25 percentage points per year. Political terrorism was found to be one of the most important security factors undermining economic growth in the short to medium term” (Poirson, 1998). It seems that airline, travel, tourism, accommodation, restaurant, postal services and insurance are the most heavily hit in these time of risk. When consumers feel threatened or scared one of the first things that they cut out is vacation. Investors feel the need to save their money in case something bad was to happen. The cities in which tourism is one of the main attractions and sources for employment are generally hit the hardest when times of terrorism are present. Because the demand to travel decreases the employers have to lay off and cut back in order to stay afloat. People who have a lot of experience in the field of tourism are forced to go do other things because when there is no one traveling because of the fear of a terrorist attack there is no need to have workers to serve them. Then to try and persuade the travelers to come back the airlines and vacation spots are forced to lower their prices below what they need to charge to be profitable just to get some people back vacationing. Since 1982 the international tourist arrivals in the United States have never fallen. 2002 was the first year it did and it fell by 6 percent. People were scared to travel to the United States after what had happened on 9-11.