A closed economy is a nation that opts out of international trade, choosing not to import or export goods. This approach aims for self-sufficiency, trying to meet all needs internally without relying on external sources. However, in the modern global context, such economies are more of a concept than a practical reality, although some countries exhibit more closed economic traits than others.

Trading empowers countries to focus on industries where they excel, efficiently allocating resources. This specialization enables faster growth as countries produce and export what they can efficiently make and import what's less economical for them to have. This dynamic can influence global trends.

For instance, the shift of manufacturing jobs to China, where production costs are lower, has reduced such jobs in the U.S. This often leads governments to adopt protective measures like tariffs and quotas to safeguard domestic jobs and industries from international competition.

However, implementing such protective policies doesn't equate to a completely closed economy. A closed economy would require a total ban on all international trade, depending solely on domestic consumption, investment, and government spending for growth. In such scenarios, if a country can't produce a particular good, it simply won't have it.

Maintaining a closed economy is challenging. The availability of natural resources varies globally. Take semiconductors, for instance, which require silicon. Not every country has silicon reserves, necessitating trade with silicon-producing nations like the U.S., China, and Russia. Without trade, a country lacking silicon can't produce or access technology reliant on semiconductors, like cell phones and computers.

Right now, the USA is the largest trading country with at least US$5,600 billion value traded by the end December 2019. It is the biggest foreign importer of all world states, the second greatest exporter for goods on a global scale, and heads the chart of exporting services worldwide.

Measuring A Closed Economy

In analyzing if a given economy is open vs closed economy has to check the percentage of a country’s imports and exports compared to its GDP. The ratio of imports to total exports provides an easy view as to how far a country participates in world trade.

In this context, Sudan in Africa emerges as a prime example of a closed economy. The latest figures reveal that imports constitute merely 1.9% of Sudan’s GDP, and its exports are slightly higher at 2.3%. This indicates a minimal reliance on international trade. In stark contrast, the United States represents a more open economic model. There, imports and exports form a significant portion of the economy, accounting for 13.3% and 10.2% of the GDP respectively. This disparity highlights the varying degrees of economic openness across different countries.

Such statistics are crucial for understanding the economic strategies and trade dependencies of nations. They provide insights into how countries balance domestic production with foreign trade, a key factor in their overall economic health and growth prospects.

Challenges of Sustaining Closed Economies in a Globalized World

The current global trend leans heavily towards international trade and globalization, making closed economies somewhat outdated. Modern economic principles advocate for countries to open their markets to international trade. This is based on the belief that leveraging comparative advantages can benefit all citizens. People can enhance their investments by allocating more energy to maximize profitability.

As an additional point of reference, the OECD highlights that economies that are open prosper relatively faster than those that are closed. Companies engaged in international trade usually pay higher salaries and have a conducive work environment. A prosperous and opportunistic global environment also contributes to more excellent stability and security worldwide.

However, maintaining a completely closed economy in today's world poses significant challenges, mainly due to the essential role of raw materials in daily life and goods manufacturing. For example, many major manufacturing and exporting nations lack certain crucial raw materials and must import them.

According to an independent research website, ‘world’s top exports’, in 2021, the top five importers of crude oil included China, the United States, India, South Korea, and Japan. This is an exception; the USA presents a peculiar situation regarding these imports and exports. The figures of the US Energy Information Administration show that the USA imports – about 6.11 million barrels per day while also exporting - approximately – 2.90 million barrels.

Looking towards the future, lithium presents a striking example. Essential for the batteries powering electric vehicles, lithium reserves are limited in many industrialized nations, including the U.S. This necessitates reliance on imports. In 2020, Australia, Latin America, and China dominated lithium production, collectively accounting for 98% of the global output, as reported by McKinsey & Co.

Why Should You Close An Economy?

While rare in its absolute form, the concept of closing off an economy still manifests in the partial closure of specific industries or sectors to international competition. For instance, some oil-rich nations have historically barred foreign petroleum companies from operating within their territories.

The rationale for a partially closed economy hinges on the concern of over-reliance on imports, potentially leading to a skewed trade balance. Domestic producers also struggle against lower-priced international competitors. In response, governments may resort to protectionist strategies like tariffs, subsidies, and quotas to bolster local businesses.

A notable example is the United States. Despite generally low tariffs, 2018 implemented a 25% tariff on steel and a 10% tariff on aluminum imports, targeting unfair competition, especially from China. These measures were revised in 2022.

Trade can be quantified relative to GDP in each country using the indicator GDP/MNP and M for imports, and n for exports. Currently, Sudan is ranked as having a closed economy that only represents three percent of the annual GDP for exports and imports. However, the US provides greater figures, showing 13.3 percent of imports and 10.2 percent of exports.

Final Thoughts

In conclusion, while no nation today operates a fully closed economy, the degree of openness varies. Relatively closed economies depend less on international trade, aiming to self-produce the most required goods and services. The prevailing economic view suggests that more open economies are generally more advantageous for their citizens and the global community than those more closed.