Like many other illegal and political activities, terrorism affects trade on several levels.
Terrorism, like war and other forms of violence, strongly affects the pattern of trade. Countries that are plagued by a larger number of terrorist attacks trade significantly less than similar countries that do not suffer from terrorism. As interdependency between countries grows, and as nations become more dependent on foreign trade and tourism, the devastating impact of terrorism on economies is more evident.
Terrorism has existed since the beginning of civilization, but its influence on international trade began to grow only with the expansion of international connections and dependence on complex banking and transportation systems. The Jews in Roman-occupied Judea targeted individuals who cooperated with the Roman regime. During the early Muslim empire, personal assassins—called “Hashshashins,” a term derived from their use of hashish—were hired to kill political rivals. The term later took on the meaning of a person who commits a murder for political reasons: an “assassin.”
A change in the form of terrorism and the effect it had on the world and on trade began in 1968, when the era of so-called modern terrorism began. At that time, international terrorist groups started to appear and even local terrorist movements began to operate across state borders. The scale of terrorism escalated dramatically, and national industries—such as aviation—became the main target. Some groups, such as the Red Army Faction (Rote Armee Fraktion), also known in Germany as the Baader-Meinhof Gang, announced that its main aim was to harm Western economies and in this way draw more attention to the inequalities in the world and, in particular, to the distress of the Third World.
The Impact of Terrorism on International Trade
Although the impact of terrorism on trade varies across time and place, violence and warfare generally cause additional costs for transactions. Therefore, there is a negative association between terrorist activity and the volume of trade to be expected. More specifically, there are at least three principal ways in which terrorism hinders international trade.
First, terrorism leads to insecurity and thereby raises the cost of doing business. Alvin Buckelew defines terrorism as “violent, criminal behavior to generate fear in the community, or in a substantial segment of the community, for political purposes.” Depending on the magnitude of terrorist attacks, people may become increasingly confused and nervous or feel generally less safe.
For instance, the September 11, 2001, attacks on the Twin Towers of the World Trade Center in New York City and on the Pentagon in Washington, D.C., created fear and had a significant negative impact on the economy. Therefore, terrorism may lead to a change in a country’s consumption and production patterns. Left-wing terrorists in the 1960s and 1970s bombed department stores to deter shoppers; Colombian businessmen have changed their lives and routines because of kidnappings in the country in the 1990s; and Israelis use less public transportation and shop in less-crowded places because of the terrorism that reemerged after the second Intifada broke out in 2000. The terrorists thereby bring about a change in international trade trends—consumers might buy more security-related goods but might not consume what is considered a potential danger (e.g., they might not travel by air).
The terrorist attacks on the World Trade Center on September 11, 2001, have had a major effect on world trade, forcing governments and industry to implement costly security measures that often slow the transportation of goods and people across borders. (© Lee Snider/The Image Works)
Since the economic impact of terrorist bombings and shootings is hardly predictable, existing business plans may quickly become obsolete as firms must reformulate them to deal with new risks. A country that experiences terrorist attacks may face a reduction in the attractiveness of its market for international producers. Risk assessments for businesspeople usually deter investment in “trouble spots” around the world.
Second, the typical response to an increase in terrorist activity is an increase in security measures. Stronger regulations, however, make trade more expensive, for example, by increasing delivery times. For instance, after September 11, 2001, U.S. borders were temporarily closed; after the borders were reopened, trucks on the border between Canada and the United States had to wait up to twenty hours for a crossing that normally takes minutes. El Al, Israel’s flag airline carrier, generally holds goods for a day for security checks and does not announce its departure schedule in advance. These measures increase security but also create obstacles for trade.
Third, there is the risk of the destruction of goods. Although many terrorist attacks do not aim to cause direct economic damage, others explicitly try to cripple economic interests, such as tourism. Terrorists increasingly target a country’s trade because countries appear to be particularly vulnerable to the disruption of industry supply chains or the destruction of particular modes of transportation. For instance, according to the terrorism database of the U.S. State Department (2002), there were at least 178 bombings of a multinational oil pipeline in Colombia in 2001 alone. Higher risks, additional security measures, and the direct disruption of trade raise the cost of transactions and thereby reduce the volume of international trade.
Terrorism and Illicit Trade
The “assassins” were not the last to link commerce and the usage of illegal goods, especially narcotics, with terrorism. Thus, not only does terrorism harm trade, but many terrorist groups are also involved in illegal trade at national and international levels to finance their activities.
Narcoterrorism, terrorism related to trade in illegal narcotics and financed by this trade, is widespread. In Latin America (especially Colombia), guerrilla groups use drug money to pay for their training and weapons. Groups such as al Qaida and Hezbollah are also involved in the drug trade to finance their activities. Other terrorist groups help operate the arms trade, the black market, or the sex trade.
Trade and the Struggle Against Terrorism
Several theories claim that opening society to economic opportunity and political expression would reduce terrorism because it often grows in an environment in which the public has no open forum in which to express dissidence, thus using violence where they cannot participate in public life. In this view, liberalizing trade and investment is a potential tool for fighting terrorism.
This perspective led to the conclusion of trade pacts aimed at increasing and strengthening the bond among counterterrorist organizations and operations around the world. The Doha Round of the World Trade Organization negotiations (2002) is supposed to pave the way for substantial trade liberalization.
Despite these clearly identifiable trends, the overall magnitude of the effect of terrorism on trade remains unclear. In fact, it is even possible that terrorism has almost no measurable effect on trade because the overwhelming majority of terrorist actions are operations with only local implications. In addition, terrorists rarely target freight directly, and physical destruction is, at least in principle, insurable. However, with the globalization of terrorist activity, its impact on the world economy and trade becomes more and more evident, even if not measurable or direct.
Nadav Gablinger
See also: European Union; Illegal Trade.
Bibliography
Buckelew, Alvin H. Terrorism and the American Response. San Rafael, CA: Mira Academic, 1984.