May 29, 2005
Free Trade Here Now!
A lot of people on the left are unhappy with American trade policy. They think corporations are profiting by keeping the Third World in poverty. They're right about this, but not exactly in the way that many of them think.
As far as policy in the First World is concerned, it's our protectionism, not free trade, which impoverishes poor nations. That's why venerable relief organizations like Oxfam are pushing for America to permit more imports of foreign goods. (In poor countries, the story is different -- the relief organizations tend to support poor countries in protecting nascent industries and blocking imports.)
Agricultural subsidies are a particularly big villain in this story. (This is a score on which we're doing badly while the EU and Japan are doing worse.) While farmers in poor countries can often grow cheaper crops than our farmers can, our government subsidizes agribusiness so that it can drop prices really low and still make a profit. As a result, markets even in poor countries are flooded with artificially cheap rich-country sugar and corn. Farmers there who would be able to compete on a level playing field can't compete with the subsidized products. While they can eat the cheap corn and sugar, they make less money, so they lose the ability to get health care, clothing, clean water, electricity, and many of the other things that keep life from going badly. The only winners in this deal are the big agribusiness corporations. (This, friends, is why you should hate the corn lobby.)
There's a dream scenario in which we negotiate away our bad trade policies in exchange for genuinely useful policy improvements from Third World nations. Here we'd get good stuff in return for doing something we ought to do anyway -- negotiations aimed at exchanging trade concessions for improvement in human rights or nuclear nonproliferation would be especially cool. Maybe we get a bunch of bright developmental economists together and figure out how high a minimum wage we can demand on goods being imported tariff-free into America before capital-labor substitutability* starts making wage increases counterproductive. There's a lot of great moves to be made on this front, and they all depend on overcoming the interests that control American trade policy. (And, of course, overcoming a party that only pretends to care about poverty, nuclear nonproliferation, and human rights. But everything depends on that.)
*capital-labor substitutability is the economists' term for when labor prices get so high that companies fire some of their workers and replace them with machines that allow fewer workers to do the same work. The argument that paying workers more than a dime an hour for making Nikes will mess up Nike's position in the domestic shoe market is based on a total misunderstanding of how the domestic shoe market works, but you still have to worry about workers being replaced by machines that can do the job cheaper. That would be a genuinely unfortunate consequence of a higher-wage policy.
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» Why the Left doesn't like free trade. from Democracy Vs. The Constitution
Free trade is in fact bad for American poor. The economists POV that free trade is universally good for the country, hinges on the idea that a certain trade policy decision is positive sum. [Read More]
Tracked on May 31, 2005 1:31:48 PM
muchas gracias for this mr werewolf. now i have to add you to my daily-read list.
Posted by: almostinfamous | May 29, 2005 8:01:03 PM
Re Oxfam: Just in time for the mother of all trade deficits. I don't think so.
Posted by: spaghetti happens | May 29, 2005 10:18:41 PM
Even if it's done right free trade sucks for us here in the United States. You and Tom Friedman can sit around talking about the ideals of free trade, while the gap between rich and poor in this country, and around the globe keeps growing.
Putting aside the rhetoric for a minute, if we don't have cheap food to sell these third world countries what else do you have left to trade? Our cars and other such American made goods are too expensive to sell in these third world nations. Seriously, what are we trading? We consume a whole lot, and our consumption is causing us to keep running up our debt. Eventually we have to look out for ourselves.
Posted by: jbou | May 29, 2005 10:26:29 PM
There is no greater money waster than war. If you can steal enough to make a profit from the losers these days you'd be canny indeed. You have to have petroleum to run expeditionary forces. So you need to secure supply. Fun keeping the state of the art of war advancing and convincing people it's necessary, hm ? A friend of mine (now deceased) quipped "Pity the U.S.S.R. They're in a pissing contest with the only nation to use nuclear weapons in war." jbou "look out for ourselves" ? WTF do you think U.S. popularity isn't so hot ?
Posted by: opit | May 29, 2005 11:05:57 PM
Neil -- good post, but doesn't it seem that if a developing country is a net importer of a given crop, then U.S. subsidies on that crop could actually help the country in question? That seems to be the case in Ethiopia, though it's not really a settled question, I know.
Posted by: Brad Plumer | May 29, 2005 11:08:21 PM
I suppose it could, Brad. I think the attitude at the end of your post is right.
Posted by: Neil the Werewolf | May 29, 2005 11:43:44 PM
Brad, I don't think you can generalize from a single crop and a single country to argue that protectionist First World agriculture policies are doing good. The wealthy West could certainly produce all of Africa's food needs and airlift it in each month. Clearly, Africa would be getting cheaper food but would be producing nothing and remain dependent on aid. Poor countries in Africa and elsewhere usually have comparative advantage in farming( of at least some crops) and textiles and need to be able to sell those goods to benefit from free trade, as Neil said.
Posted by: QuietStorm | May 29, 2005 11:47:43 PM
When I say "looking out for ourselves", I mean the American working man or woman, not the greedheads who keep telling us that globalization is great. The same people that preach how great globalization is are the same ones who swoop into a developing country with loans, tell them that they have to privatize everything, and when they do, and said country starts losing money, they yank their money out that country's markets, and the people of that country are left holding the debt that needs to be repaid.
These countries want to dump cheap goods in our country and finance our record debt at the same time, this screws the working folks but is great for the rich. If I'm missing something please explain.
Posted by: jbou | May 30, 2005 12:05:16 AM
On food aid, check this article out.
Posted by: Brad Plumer | May 30, 2005 12:21:45 AM
i see the point of your economist article, but they offer no clue as to the long-term sociopolitical benefits of true(i.e capital AND labor) globalization and what we hippies call 'fair trade'. they keep insisting, in other words(like true conservatives that they are), that the way things are is the way things have to be and that any method that they do not endorse is immaterial and impossible to devise.
i understand in basic terms the advantage of removing barriers to trade, but when there are predatory global corps lurking i think it is best not to leave the gates unattended (the east india company comes suspiciously quick to the mind)
Posted by: almostinfamous | May 30, 2005 9:02:27 AM
the only way out, jbou is to fiercely campaign for a fairer trade system rather than the current heavily westward-biased WTO/IMF/WB system that pulls out more money from a country than it sends in through deviously negotiated contracts that only favour the rich on either end of the deal, leaving (mostly less-than-wealthy)people doing agriculture in their own countries with a lot less resources with which to find advantages.
Posted by: almostinfamous | May 30, 2005 9:09:00 AM
I'm just a dumb Canuck who can't understand how "developing" our country rigs a deal where we owe for the principal forever. At the same time if our currency falls we're unfair competition and subject to countervailing levies. Talk about bitching about prosperity. Check out the number of apps. that have been made against Canada by the same people whose idea free trade was (C.I.A. agenda 1945) and compare to those posted against U.S. The first 40 years our country existed free trade was fought over. It lost. Now 10 years into an arrangement voted out by the electorate because we knew it would eventually destroy our economy your naive complaint stirs little empathy. What do you seriously think people in the banana republics think of U.S. international companies ? I'm polite.
Posted by: opit | May 30, 2005 10:29:09 PM
I think it was Prof DeLong that said, "The only thing worse than exploiting a 3rd-world country is NOT expoiting a 3rd-world country."
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Posted by: Anagemba | Apr 10, 2006 8:36:03 AM
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WE ARE SENDING THIS LETTER TO YOU BASED ON INFORMATION GATHERED FROM
THE FOREIGN TRADE OFFICE OF THE NIGERIAN CHAMBER OF COMMERCE AND
INDUSTRY. WE BELIEVE THAT YOU WOULD BE IN A POSITION TO HELP US IN OUR BID TO
TRANSFER THE SUM OF FOURTY-ONE MILLION, FIVE HUNDRED THOUSAND DOLLARS
($41.5M USD) INTO A FOREIGN ACCOUNT.
WE ARE MEMBERS OF THE SPECIAL COMMITTEE FOR BUDGET AND PLANNING OF
THE MINISTRY OF PETROLEUM, THIS COMMITTEE IS PRINCIPALLY CONCERNED WITH
CONTRACT APPRAISALS AND APPROVAL OF CONTRACTS IN ORDER OF PRIORITIES AS
REGARDS CAPITAL PROJECT OF THE FEDERAL GOVERNMENT OF NIGERIA. WITH OUR
POSITIONS, WE HAVE SUCCESSFULLY SECURED FOR OURSELVES THE SUM OF
FOURTY-ONE MILLION, FIVE HUNDRED THOUSAND UNITED STATES DOLLARS(US$41.5M).
THIS AMOUNT WAS ACCUMULATED THROUGH UNDECLARED WINDFALL FROM SALES OF
CRUDE OIL DURING THE GULF WAR.
< BR>WHAT WE NEED FROM YOU IS TO PROVIDE A SAFE ACCOUNT INTO WHICH THE
FUNDS WILL BE TRANSFERRED SINCE GOVERNMENT OFFICIALS ARE NOT ALLOWED BY
OUR LAWS TO OPERATE FOREIGN ACCOUNT. IT HAS BEEN AGREED THAT THE OWNER
OF THE ACCOUNT WILL BE COMPENSATED WITH US$8.3 MILLION OF THE REMITTED
FUNDS, WE KEEP US$31.125 MILLION WHILE US$2.075 MILLION WILL BE SET
ASIDE TO OFFSET EXPENSES AND PAY THE NECESSARY TAXES.
IT MAY INTEREST YOU TO KNOW THAT TWO YEARS AGO A SIMILAR TRANSACTION
WAS CARRIED OUT WITH ONE MR. PATRICE MILLER, THE PRESIDENT OF CRAINE
INTERNATIONAL TRADING CORPORATION AT NUMBER 135, EAST 57TH STREET, 28TH
FLOOR, NEW YORK. 10022 WITH TELEPHONE(212)308-7788 AND TELEX NUMBER
6731689, AFTER THE AGREEMENT BETWEEN BOTH PARTNERS IN WHICH HE WAS TO TAKE
5%. THE MONEY WAS DULY TRANSFERRED INTO HIS ACCOUNT ONLY TO BE
DISAPPOINTED ON OUR ARRIVAL IN NEW YORK AS WE WERE RELIABLY INFORMED THAT MR.
PATRICE MILLER WAS NO LONGER ON THAT ADDRESS WHILE HIS TELEPHONE AND
TELEX NUMBERS HAVE BEEN REALLOCATED TO SOMEBODY ELSE, THAT IS HOW WE LOST
US$27.5M TO MR PATRICE MILLER.
THIS TIME AROUND WE NEED A MORE RELIABLE AND TRUSTWORTHY PERSON OR A
REPUTABLE COMPANY TO DO BUSINESS WITH HENCE THIS LETTER TO YOU, SO IF
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