Who Benefits From Free Trade?
January 16th, 2008 by Peter SudermanFree trade can be a tough issue sometimes, in large part because free trade — even that which produces an unambiguous positive overall good — can cost some individuals jobs and wages in the short term. When this happens rapidly in some sectors, vocal minorities make their opposition known, and they can often produce sizable shifts in public opinion. This is happening right now, as we see that even amongst Republicans, skepticism about trade is growing. In a recent poll, 60% of GOP voters reported that they believe free trade has been bad for the U.S., despite clear evidence to the contrary (American factory output has increased more than 50% since the advent of NAFTA and the WTO).
Yet opposition persists, and political candidates like John McCain and Mitt Romney offer plans to spend taxpayer money on those who’ve experienced losses as a result of trade. Is this good policy? Do those people deserve to be compensated by the gains of free trade? In today’s New York Times, economist Steven Landsburg says no, and helps put the question in perspective:
One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.
In what morally relevant way, then, might displaced workers differ from displaced pharmacists or displaced landlords?
Of course, it’s doubtful that any argument or evidence will stop folks like John Edwards from going on like this.
January 16th, 2008 at 3:38 pm
Free Trade is indeed a tricky issue, because it does provide a tangible benefit to consumers and of course to the companies that manage to have success in a highly competive market. However the price to be paid might be too high in some instances.
In the US the problem is compounded because the most sucessful economic sectors (and companies) are the ones that don’t adhere to free trade at al. Telecom, Cable, Oil and Big Pharma for instance thrive in an environment when there is no competition. The telecom industry is a regulated monopoly, the oil industry is part of a bigger cartel that does not follow any market fundamentals, and big Pharma enjoys absurd protections from competion in the form of a very generous patent system, finally Cable operators are a de facto monopoly in most markets.
So the question is, why force free trade policies in certain sectors and not on other ones? (like the ones I just mentioned).
A second issue at hand is consumers. They are the winners of course because of great products at very low prices, but who and where are those consumers when true global free trade economy emerges ? The ideal would be to have all those consumers inside the US, however because of the fact that not everyone wins with a free trade model, we might end up having millions of losers in our own soil that won’t have the money (or jobs) to enjoy the advantages of free trade. So as long as we still have nations and borders, a balance must be established in order to benefit american consumers on all aspects (lower prices and also having paid jobs).
And I believe that such balance does not exist yet in the US. In fact it is funny how all the top execs at Telecom companies are all for free trade when they are a monopoly !
I think there is a saying that goes like this. Every Wall Street capitalist is for free trade as long he does not have to face any competition. As soon as the going gets though (like in the steel and car industry) they will beg for protections.
January 16th, 2008 at 6:30 pm
Remember, Leonardo, that these folks have swallowed the Ayn Rand free-market cool-aid and hold onto that ideology like fundamentalists. They don’t believe there’s a need for the “balance” you describe. Which is too bad.
There’s another saying that’s more apropos here, and which demonstrates why the so-called “free trade” model cannot work without protections: When have you ever known human beings to compete for money without some of them trying to cheat?
January 17th, 2008 at 1:06 am
“American factory output has increased more than 50% since the advent of NAFTA and the WTO).”
I think the critics of free trade might be talking about job losses, not how much more money manufacturing plant owners are making.
I’m a free/fair trader. We need a level playing field though, which we haven’t done yet. Other countries need to firm up (or construct from scratch) labor and environmental protections in order to make free/fair trade work for everyone. We should also help people here that are displaced from jobs by helping them train for new jobs. Don’t we want people here to have jobs? Who’s going to buy all these cheaper products if they are out of a job??
January 17th, 2008 at 12:30 pm
I’ve been thinking lately that its access to trade that keeps us going, despite reckless and self-destructive spending patterns in the federal government. More than anything, I fear the rise of a true economic isolationist and the increased populist rhetoric against China’s “undervalued” yuan or Mexico’s “unfair” trade advantages. I guess people don’t want to feel reliant on their neighbors, but competitive advantage is what makes the world go ’round.
January 22nd, 2008 at 1:05 pm
I’ll tell you who benefits from So-called Free Trade. The CEO’s, Board of directors, Owners of Companies, Rich guys, wealthy, corporations.
Who loses: Everybody else. The middle class worker who has his job outsourced to China, the city that had a factory close because the Corporation moved its labor intensive plant to a dirt-cheap, slave-labor pool in China, families, sense of unity, our soverignty.
Millions of people have lost good paying manufacturing jobs in the USA so we could buy t-shirts and toys for 1$. I think Americans as a whole would willingly pay a couple bucks more for that toy and t-shirt IF they knew that they were supporting their neighbor’s job. That would cause an increased sense of community which is also lost with “Free Trade”. There is nothing free about “free-trade”, since it is costing people millions of good paying jobs here in the USA.
NAFTA, CAFTA, WTO SUCKS!
James Bitakis
Jimbo