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May 2, 2007

A Must-Read On Trade

by at 11:15 am.

My husband just sent me this link, describing why free trade is not only morally wrong, but bad for America:

DM thinks we should not apply a different set of standards to exchanges involving international trade than we do to those that are purely domestic. I agree! What I think he overlooks is that in fact we do encumber domestic exchanges with a lot of restrictions, and in some cases even outright prohibitions. […] The point is that restrictions do exist in domestic exchanges as well. Individuals are never completely free to sign certain contracts.
[…]
The reasons that we routinely restrict and regulate domestic exchanges are manifold. Sometimes we do so to uphold deeply held norms and values (as with anti-slavery laws). Sometimes we want to redress bargaining imbalances (as with a lot of labor legislation). Sometimes we worry about informational shortcomings (as with health and safety standards). When we try to disassociate international trade from such concerns, we in fact create a double standard: it is not OK for me to displace American workers by employing child labor at home, but it becomes OK for me to do the same by employing child labor abroad.

Right on. That is just the perfect explanation of why fair but open trade, not free trade, is the correct course of action.

13 Responses to “A Must-Read On Trade”

  1. Jay Booth Says:

    So what’s “fair but open” trade as opposed to free trade?

    My big thing with free trade is get rid of tarriffs and get rid of subsidies so countries produce what they’re most efficient at producing and then trade, both countries win, and try to make deals multilateral instead of bilateral so you don’t get wacky A -> Q -> F ->B trade routes.

    Are you opposed to those principles? Or do you just think that the US should be using it’s trade policy to achieve more political goals with foreign countries?

  2. Mr. Lynne Says:

    Actually, “get rid of subsidies and tarriffs” implicitly says that there isn’t an even playing field (unless you get rid of subsidies and tarriffs).

    I think what Proffessor Rodrick is pointing out is that the protectionist issues on the pricing side are not the only ways that the playing field is uneven.

    If getting rid of subsidies and tarriffs is a way to make trade more ‘fair’ then it must be acknoledged that there are other structural issues that have the efect of making things ‘unfair’ and that addressing one set of issues without the other may be said by some to be ‘free trade’ but it can’t be said to be ‘fair trade’.

  3. Jay Booth Says:

    So you’re defining “fair trade” as a super-set of free trade?

    My beef with “fair trade” is I can’t get anyone to explain what they mean. It’s seems like an expression for a general frustration with modern life and the downsides of globalization. But nobody wants the cost of socks at Wal-Mart to triple.

    So are you for protectionism? Or for breaking down trade barriers (free trade) plus another set of policies? Which ones?

  4. Corey Says:

    Just as an aside, before Lowell was founded, F.C. Lowell went to Washington and lobbied for a protective tariff to be put on textiles, so that the fledgling American industry would be protected from cheaper British goods. As the American industry scaled up (and all the new jobs it created with it), prices were able to drop dramatically anyhow. In the end, free interstate trade killed the New England textile economy (only about 100 years after it got off the ground…), and then international trade killed the Southern textile economy. How much of this is sound economics, and how much is social wronging?

    Americans fought hard (The Mill Girl strikes, Bread and Roses right next door in Lawrence…) for many years to have labor laws, workplace safety laws, pollution laws, and whatever other socially moral (It could be argued) laws we have put in place. These laws are not only being circumvented by multinational corporations, but they are somewhat working against us now - because we’re ethically right, we’re more expensive. I don’t know if this is still the case, but it’s one of my favorite stories on the topic: For a while, Fender Guitars, which the nice ones are made in America, were selling a new line of guitars. THe bodies were made in California but shipped to Mexico for painting and laquering, then they were shipped back to America to be assembled. These guitars sold for over $100 less than the purely American models. I think a big part of the cost savings wasn’t cheaper labor, but more lax pollution laws on the types of chemicals that go into laquering. So, that means that to save a few hundred dollars, all that extra gas was being used, and we were still polluting the same atmosphere.

    So yes, I think a lot of the “fair trade” push is frustration with being punished by our own laws that were intended to help.

  5. Lynne Says:

    Corey pretty much nails it.

    We need to put restrictions on trade such that a corporation can’t externalize the costs that they aren’t allowed to here. Rules placed on trade like pollution control, fair wages, worker safety, natural resource protection, will do a couple things, with no downside I can see: it will make America more competative with those “cheap” places to do business (ie places where corporations are allowed to dump the cost of doing business on others unfairly) so there is less “rush to the bottom”; and it will allow workers in other countries to equalize their pay/quality of life over time so that eventually, it will equal ours.

    If we leave trade “free” without restrictions, in many countries, this last goal will not happen naturally. There are too many other factors, like corrupt governments artificially keeping the population down and the environmental/worker safty laws nonexistant, and the corporations are incentivized to support and prop up such governments because it keeps their cost down to have these poor working conditions in place.

  6. Lynne Says:

    Hey, how about this for an idea:
    For corporations who achieve this standard of treating workers fairly, restricting environmental devastation, etc, there is no tariff and trade is “free.” For those that do not, tariff the heck out of ‘em. Put into place an agressive fine system for when you find violators.

    Then, use that money collected for foreign aid going to such things as education, health care, economic aid. If we really want to “lift all boats,” the US can really use its influence very easily to start achieving this.

    However, generally speaking, it is never the intention of the oligarchy to raise all boats…they want to keep as many people down as possible, all the more cheaper for them. They lie to the public, calling free trade the way, when really they wanted to have no restrictions so they can exploit cheap labor and lack of environmental laws in other countries. That’s why the American people, who are actually a generous and kind electorate, should demand fair trade and overturn decades of business influence on our government when writing trade policy.

  7. Corey Says:

    I think the reality of today’s world is that the world has gotten too small for anything to be done. You pass any sort of new laws at anything less than a world scale, and someone will find a way around it. I think that things are so bad at this point that there’s barely even any voting with your wallet left to do. “Buy American” I don’t even think is possible today. My “American” car was made in Canada, and I’d bet money that half the parts are from China. And the gas of course is from countries where we are not very popular as a nation.

    People complain that Credit Card companies incorporate in Delaware to get around usery laws, but at least that’s still our own country - we have power over that if we so chose. What can we do about companies incorporating in Bermuda to avoid our laws and taxes? What can we do about punishing tariffs from around the world when we try to implement one in our own interest? (Case in point, the talk about a tariff to protect U.S. Steel almost faced reactionary tariffs from China and Europe). I think the answer is not much we can do.

    And as Jay said, not many people will pay three times Wal-Mart prices for socks. As a fortunate Yuppie, I could do that and in fact do refuse to shop at Wal-Mart, but I know that I have no right to ask others to do the same. Nor do I hold any beliefs that Target or Sears is really that much better. Degrees of evil I guess. Another part of the socks issue, to discuss socks, is my grandmother used to mend socks with holes in them - who does that today? Who fixes any clothes? Anything? Not only is American manufacturing dead, but American frugality is as well, leading to more waste.

    Unless the U.S. was to go completely isolationist (impossible today for a huge number of reasons, one of the biggest being GAS) we are no longer in real control of our own economy, and our lawmakers are somewhat helpless against it. And since isolationism is not a good policy, I think we’re somewhat helpless in this as a nation, and that’s scary.

  8. waittilnextyr Says:

    Well, the US still has some leverage on tax policy, unfortunately they not only do not use it, but actually favor the internationalists.

    Let’s assume we have two corporations, one that is essentially all-American (materials, labor and sales) and the other is like Walmart (US sales, and a fraction US labor). Now look at the total tax paid from each enterprise. With the all-American one, there is corporate tax on profits, but more importantly, the income and payroll taxes on its employees. Contrast that with Walmart, where the corporate profit tax may apply (they may be able to manipulate even this) but so little of there expenses are for US labor, that the income and payroll taxes are small.

    If we restructured the tax code so that each corporation doing an equal business in the US provided the same amount of taxes, we could be sure the playing field would be a lot leveler than it is today.

    And to follow up on Lynne’s point of purposeful income disparity, the list of the 10 richest people in America contains 4 named Walton.

    Bringing the tax issue down to the level of Massachusetts, isn’t one of the Governor’s proposals to close the loophole that Walmart exploits relative to its real estate profits in the State? Yet the legislature won’t act to close it.

  9. Corey Says:

    That’s one idea, and not a bad one - we are obviously quite a consumer nation, so not many companies would skip out on doing business in America over taxes.

    However, I think as Lowellians we have to be extremely cautious of Massachusetts business taxes. We have to deal with a very short drive to a very ‘libertarian’ state that will more than happily take over any business (and historically has [remember when Lowell had a Sears and a Jordan Marsh?]) that feels it’s being overcharged or overregulated here.

  10. Jay Booth Says:

    Wow, good posts guys.

    I basically view US income disparity as being completely different from trade. My opinion is:

    A) Trade increases the total amount of wealth in the US
    B) Wealthy people are more positioned to leverage trade (just as they are more postitioned to leverage improvements in automation or IT in their businesses)

    ..leading to C) Open up trade and maintain a progressive tax code to address income disparity. We’re all better off. As far as Chinese income disparity, I don’t view it as our problem and believe we’d be more inclined to hurt than help if we tried to muscle them on it. As an extension of Lynne’s idea, I’d say we just fund these “lift all boats” programs off of a very progressive income tax and provide tax credits for hiring American workers as a blanket solution. Leave trade as in barriers to goods moving around out of it. Tracking down people who are running sweatshops in China, bickering over the definition of sweatshops, etc will just lead to bureaucratic silliness.

    I view arguments that “trade costs manufacturing jobs” in the same light as I would view arguments that “computers cost transcription jobs”. It’s progress. Deal with it. There aren’t some finite number of jobs in the world and once they’re allocated, that’s it. There are as many potential jobs as there are good ideas.

    I agree that we shouldn’t allow companies to headquarter offshores to evade taxes. We should penalize for that. And as far as evading environmental problems by outsourcing, well, I’ll have to think about that a bit more. My instinct is that all we’ll do is create red tape that’s outdated and counterproductive within 5 years as technologies and the global business climate evolve. But if someone showed me a good idea (and I acquired the requisite economics PhD to understand what on earth they were talking about), I’d be for it.

  11. Mr. Lynne Says:

    The thing I wonder about is this: We all know the unbalancing results of tarriffs and subsidies for international trade because we hear about it all the time. But what about all the other factors that can contribute to an imbalance? We trade with places where producers don’t have to worry about health care, either because it’s externalized by the government or externalized by the non-existance of services. We have basic pollution controls that others don’t and that shows itself as a difference in production costs.

    My real big problem with absolute free trade is that while the basic theory of the unbalancing effects of tarriffs and subsidies has basically panned out, any effort to make a fair playing ground is disengenuous, insincere, and corporate profit centric when the attempt to address imbalance stops at subsidies and tarriffs.

  12. waittilnextyr Says:

    Sorry, there are 5 Waltons on the list, not 4 as I previously stated.

    1. Gates, William H III
    2. Buffett, Warren Edward
    3. Allen, Paul Gardner
    4. Walton, Helen R
    5. Walton, S Robson
    6. Walton, John T
    7. Walton, Jim C
    8. Walton, Alice L
    9. Ellison, Lawrence Joseph
    10. Ballmer, Steven Anthony

    And if you expand this to the whole world (later date), things don’t change that much.

    1. William Gates III
    2. Warren Buffett
    3. Karl Albrecht
    4. Prince Alwaleed Bin Talal Alsaud
    5. Paul Allen
    6. Alice Walton
    7. Helen Walton
    8. Jim Walton
    9. John Walton
    10. S Robson Walton

  13. Bob Says:

    ifyou want to see a good movie that raises lots of fair trade/free trade issues check out Black Gold at Revolving Museum, Tuesday May 15 at 7:00. Free admission. Coffee is the second most globally traded commodity in the world behind oil and most of the folks who do the very hard work, get about 3 cents for every $3 you spend on a Starbucks latte.

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