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.

--Neil the Werewolf