What is the real cost of an iPad, or a t-shirt? If you answer “About $500 for a basic iPad,” or “$10-20 for a t-shirt,” you’re talking about price: what you pay. The costs are what others pay. “Free” trade may lower the price, but does it lower the costs? (More)
The Tuesday Digging Deeper Morning Feature surveys an ongoing news topic through multiple sources to invite in-depth conversation. Please check back over the coming days for additional comments. This week’s Digging Deeper topic is “free” trade. I am including the quotes because whenever a word like “free” is used, the words imply a concept which may or may not be there. Who would not want free? No one, of course. But add the quotes to make it “free” and we need to look at it more closely. With “free” trade, there are winners and losers and, as we dig deeper, some moral dilemmas related to who those winners and losers are, who gets to pick the winners and losers and hidden (and not so hidden) costs to all involved.
The other day on my way home from the store I heard someone on Thom Hartmann’s radio show saying “Free trade is good. You would not be able to afford an iPad if you had to pay someone $30 an hour to build it. Where it is being built only costs a couple of dollars an hour.” The speaker was very excited about this and implied that it was a very good thing indeed for Americans to have an inexpensive iPad.
I tried to track down the quote and couldn’t. But I don’t think that sentiment is hard to find.
The moral dilemmas are easy to spot: cheap stuff for us as consumers, loss of our manufacturing base and the family supporting wages that come with that, good for foreign countries, good for and bad for foreign workers.
The definitiion of Free Trade from Wikipedia:
a system of trade policy that allows traders to act and or transact without interference from government. […] Under a free trade policy, prices are a reflection of true supply and demand, and are the sole determinant of resource allocation. Free trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are the result of protectionist trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.
A free trade agreement, such as NAFTA (North American Free Trade Agreement) is not considered free trade by the purists because it places some restrictions on trading (in fact, many of its “restrictions” were in side agreements rather than in the treaty because of political concerns at the time).
Economists and Politicians Disagree
Harvard economics professor N. Gregory Mankiw, “Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards.”
Peter Söderbaum, professor emeritus, ecological economics Mälardalen university (Sweden), School of Sustainable Development of Society and Technology:
This neoclassical trade theory focuses on one dimension, i.e., the price at which a commodity can be delivered and is extremely narrow in cutting off a large number of other considerations about impacts on employment in different parts of the world, about environmental impacts and on culture.
Söderbaum is the author of a book Understanding sustainable development: Towards pluralism in economics which states that present trajectory of the [global] economy and society is largely unsustainable. Note that trade policy is a long-standing issue:
Gentlemen deceive themselves. It is not free trade that they are recommending to our acceptance. It is, in effect, the British colonial system that we are invited to adopt; and, if their policy prevail, it will lead, substantially, to the recolonization of these States, under the commercial dominion of Great Britain.
— “In Defense of the American System, Against the British Colonial System.” 1832, Feb 2, 3, and 6, Clay, Henry (1843). The Life and Speeches of Henry Clay. II. pp. pp. 23–24
An entire wiki article is devoted to the pros and cons of free trade:
Free trade is one of the most debated topics in economics of the 19th, 20th, and 21st century. Arguments over free trade can be divided into economic, moral, and socio-political arguments.
This article contains a lot of opinion stated as fact but it is a good place to find sources and citations to follow the debate. The arguments are economic and sociopolitical and moral and many include references to the Dependency theory “a body of social science theories predicated on the notion that resources flow from a ‘periphery’ of poor and underdeveloped states to a ‘core’ of wealthy states, enriching the latter at the expense of the former.”
The fully burdened cost of a product rarely includes any of the foreseen or unforseen results of its production. The term “burdened” comes from the accounting term burden which means overhead. That cold accounting phrase, in terms of a product, would need to include the cost to the environment and human suffering.
Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries. The loss of these jobs is just the most visible tip of NAFTA’s impact on the U.S. economy. In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers’ collective bargaining powers and ability to organize unions, and reduced fringe benefits. […] the real effects of trade on the U.S. economy: trade both creates and destroys jobs. Increases in U.S. exports tend to create jobs in this country, but increases in imports tend to reduce jobs because the imports displace goods that otherwise would have been made in the United States by domestic workers.
In 1999, Cambodia signed a bilateral trade agreement that allowed it to export a quota of textile products to the United States under highly favorable terms. In exchange, Cambodia agreed to improve labor conditions and submit to factory inspections by the International Labor Organization (ILO); if better conditions were documented, the country’s quota would be raised. And yet despite Cambodia’s friendly reputation, its workers have not seriously benefited from the trade deal, in terms of either wages or labor standards. There is a simple reason for this: apparel buyers, while quite happy to win accolades for doing business in Cambodia, have remained unwilling to pay much for the privilege. Scott Nova, head of the Washington-based Worker Rights Consortium, describes sourcing departments as the “beating heart” of apparel firms. “They are compensated on the basis of how cheap they can get prices,” he told me. “The factories can take some modest steps on labor conditions, but one thing they cannot do is raise wages… pay for apparel workers in Cambodia has stagnated, according to a 2008 survey, at 33 cents an hour, lower than anywhere but Bangladesh. Labor unions are abundant, but most are funded and controlled by employers or by the government, and independent activists have been fired, suspended, sued, and otherwise targeted for repression
An attempt has been made to mitigate the damage to people by implementing fair trade policies but it is limited in scope and impact:
Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries obtain better trading conditions and promote sustainability. The movement advocates the payment of a higher price to producers as well as social and environmental standards. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, chocolate, flowers and gold.
After I started, I realized that this piece may have to be filed under “Just Scratching the Surface” instead of “Digging Deeper”. It is a huge topic. I encourage you to follow the links and read the articles. Here are some questions to get us started, not in any order and not intended to be all inclusive:
1. How much harm is okay in order to have cheaper goods?
2. Is Buy American unfair to other countries? When is protectionism okay…when is it jingoism?
3. If the “few dollars a day” that a foreign worker is paid is enough to keep them alive, is it fair to take that from them?
4. If free trade closes U.S. factories and leads to unemployment or loss of family supporting jobs is it moral?
5. Should free trade agreements be allowed without linkage to environmental requirements and human rights issues?
6. Why does Adam Smith hate people?
Please share your thoughts and additional links in the Comments.
At BPI Campus.com our Progressive Agenda is:
1. People matter more than profits.
• Corollary: Each person matters … equally.
2. The earth is our home, not our trash can.
3. We need good government for both #1 and #2.