The complexity of Fair Trade

No, it's not fair that China uses slave labor to produce cheap goods to flood our markets. It's not fair that in spite of their human rights abuses the dictatorial and oppressive Communist Chinese government continues to enjoy "Most Favored Nation" status (recently renamed "Normal Trade Relations" in an attempt to appease those who find trade with murderers and torturers unpalatable. China's abuses didn't change, just the name of trade status. Don't we all feel so much better now.)

While notably the worst, China is not our only problem when it comes to unfair trade. Much of Asia and Latin America have substandard living for most of their population therefore wages are extremely low, making production costs low, giving them an advantage against American produced goods. The problem is not just that we can't sell the stuff we make, but the imbalance gives an incentive to unscrupulous governments to maintain poverty levels in order to compete. That causes the people of those nations to suffer.

But trade is an awkward thing. If we raise tariffs too high, then many nations will retaliate with their own tariffs, reducing the markets for our goods. To a point, we can ignore some, as we have with habitual human right abusers like Vietnam, Cuba and North Korea. But those nations don't export much of anything that we consider all that important (Cuban cigars aside). On the other hand we have grown dependant on the exports from oil-producing middle-eastern nations as well as cheap, communist-Chinese produced garbage.

So the "Fair" part of Fair Trade is interpreted differently depending on who's doing the interpreting.

Wide-open trade with third world nations supposedly gives them an economic advantage, but after years of such attempts, we see that it only marginally and very much slowly affects the bulk of the people in those nations. Hugo Chavez is a perfect example of why too much trade can seriously hurt a nation.

At the same time we have our own economy to worry about. We've developed a standard of living far above what the vast majority of the world's population enjoys. But we earned it honestly, and rather than a mark of shame it should be a badge of honor noting our ingenuity and hard work. But, no, rather than something to emulate, we are treated as if we've done something wrong.

So there's the conundrum. We have a high standard of living, which much of the world doesn't. Rather than working at solving their problem the same way we did it, they want us to sacrifice our standard of living so they can improve theirs, except that's not what they'll do. No, a handful in power will get the giant's share and dole out spoonfuls to the hard working, impoverished masses while socialists in our own country whine that it's all our fault.

There are three approaches to a solution.

One, design our trade policies to optimize our own economy. This isn't actually as heartless as it seems. This was more or less Reagan's approach and it did produce positive results. For one thing it allows foreign nations to be treated as equals, something they do respect, even if they rarely voice it. Second, it places corrupt leaders in a very untenable position, because they cannot maintain their own oppressive control and maintain economic stability. Something has to give. During Reagan's administration the Soviet Union fell, precisely because they couldn't maintain economic viability (Okay, Reagan gave them a swift kick in the pants by escalating the arms race, but their weak economy was their Achilles Heel, and that was Reagan target). The Sandinistas in Nicaragua also fell from power in part because their Marxist ideologies could not maintain any sort of stable economy. The biggest problem with this approach is that while it helps our economy, the benefit it gives foreign economies is much like pulling a tooth with no pain-killer. It will stop the pain, but not before causing a tremendous amount of more pain in the process. But sometimes, that's the only option.

The second approach is to design our trade policies in order to assist impoverished nations. This sounds very compassionate, but in practice is anything but. This was both Jimmy Carter as well as Bill Clinton's approach, and resulted in empowered despots, who ruled suffering people—as well as fostering a growing hatred for America for contributing to the problems of third-world nations. It also required our diplomats to treat foreign nations like children we needed to parent. No adult likes that, least of all foreign diplomats.

The third option is one that hasn't been tried, because it takes too much cooperation, something Democrats with their infatuation for cruel despots refuse to give. Design our trade polices to primarily optimize our own economy, but with leeway for the encouragement of freedom and industry in impoverished nations. If Mexicans would apply the same effort to improving their own economy and politics that they do in trying to sneak into this country, Mexico would be competing with us as a world leader. They have the people, they have the resources, they just lack the ambition because they seem to think it's easier to simply swim across the Rio Grande and mow someone's lawn than take a risk on starting a business back in Jaurez. The same is true for most nations with struggling economies. The reason they come here is because of the opportunities, opportunities that don't exist in their countries because of the lack of freedom that they won't bother to fight for. Freedom make people less malleable, and despots don't like that, but freedom is attainable if you simply fight for it.

While truly fair trade will definitely help us, in the long term it also helps third-world nations by forcing corrupt leaders to offer freedom in order to maintain economic stability. The alternative simply makes the problem worse.

Posted by Danny Carlton at May 9, 2008 7:23 AM