All the debate over the recent deal between Pelosi, Rangel, and Bush over the deal to supposedly give Bush fast-track power for several trade deals with other countries in return for supposedly retaining basic labor, environmental, and human rights regulations has led me to consider a more basic question.
What does everyone here believe is the right way for the US to deal with trade/globalization? Free (unregulated) trade, Fair trade, or Protectionism?
Just so everyone knows what I'm talking about, I'll give a brief description of all three philosophies, along with my perceived benefits/drawbacks of each.
Free Trade
Trade without barriers - no tariffs, quotas, embargoes, etc. Also, no subsidies on domestically produced goods (which means that true free trade is different from what the U.S. practices, since we subsidize the shit out of many agricultural products).
Benefits:
- Allows corporations to seek competitive advantages by shifting production to sites with lower costs
- Access to low cost imports to help reduce inflationary pressures
- Encourages shift from low wage production to more technologically sophisticated, high wage economic activities
- Job gains in export sectors of the economy (where the U.S. has a
comparative advantage)
Drawbacks:
- Potential "Race-to-the-bottom" where poor nations compete with each other to attract low wage, environmentally destructive industries
- May Exacerbate inequalities within and between nations– new opportunities for "winners", but new costs for "losers"
- Denationalization of the economies of developing countries– local industries may get crowded out by more powerful multinational corporations
- Loss of economic sovereignty for developing countries– diminished capacity of states to regulate markets, change policies, and respond to local social needs
- Job losses and social dislocation in traditional manufacturing sectors of the economy; spending money on job retraining is expensive and time consuming
- General stagnation in real wages
- Deepening social inequalities (gains for high skilled labor and corporate profits, coupled with stagnant real wages)
- Competitive pressures make it difficult to sustain generous social benefits of traditional welfare states
- Growing trade deficits, indebtedness
Fair Trade
Like Free Trade, except for when the nation that we import from has human rights, labor, or environmental standards that we feel does not meet a sufficient baseline. In that case, we may apply tariffs that are inversely proportional to the amount of protections for labor, the environment, and human rights that the other nation has. No subsidies under Fair Trade.
Benefits:
- hitting other nations in their pocketbooks may be the only real way to force them to change social policy
- takes away the incentive to "race to the bottom"
- allows countries to ensure good working conditions without punishing them for doing so
- if these other countries effect social reform for the working class, they can develop things like a wider consumer base, less political apathy among citizens, and increased social mobility for everyone
- Ensuring that the workers are able to develop a solid source of income increases the chance of domestic entrepreneurship and the development of local small businesses
Drawbacks:
- How are developing countries supposed to build the regulatory agencies to ensure adherence to these protections when they barely have enough money to build a functional state with things like roads, hospitals, a police force, an army, etc.?
- Possible disagreements over the fairness of the baselines for the environment, human rights, and labor.
- Collective action problem: If the U.S. puts tariffs on other countries for poor labor protections, and none of the other industrialized countries do, our companies will fall behind. Fair Trade must almost certainly take place on a multilateral, instead of bilateral, basis.
Protectionism
Until Woodrow Wilson, this was the preferred trade philosophy of the United States and has also bene practiced in East Asia with Import-Substitution Industrialization. Protectionism entails tariffs on imported goods, subsidies for domestically produced goods to allow producers to sell goods for cheaper prices on the global markets, and the use of quotas or embargoes on certain goods from other countries.
Benefits:
- Keeps manufacturing jobs in the United States.
- Allows the development of local industries in any sector rather than just sectors with comparative advantages
- Increased economic sovereignty because we are less reliant on other countries for goods/services
- Tariffs get revenue for the government
- Will keep the Trade Deficit in check
- Don't need to spend money on job retraining
Drawbacks:
- subsidies are widely considered to be immoral as they put unsubsidized producers from 3rd world countries (like African farmers) out of business; France spends more on a cow than many African nations do on a person, for example.
- will cause inflation for multiple reasons:
- If our citizens have to buy goods that good be bought much cheaper from foreign companies or from companies that outsourced the production, we will be paying more expensive prices than necessary.
- If tariffs are levied on foreign goods, domestic companies can sell goods for more expensive prices and not suffer the consequences as long as the prices are still less than the taxed imports
- if other countries can't sell goods to the U.S., they will in turn raise their tariffs against us to avoid incurring a trade deficit of their own; this really fucks us in the ass during times of global recessions, when companies are desperate to find people to buy their goods (legendary progressive economist John Kenneth Galbraith blamed tariffs as one of the reasons why the Great Depression lingered so long)
- relying on other countries for goods/services may be good from a diplomatic standpoint because interdependence with another country makes it much more difficult to consider going to war with the country (this is a strong argument for opening relations with Iran)
- shying away from trade means that we can't utilize the concept of comparative advantage and tailor our economy to produce whatever our workers produce most efficiently
My personal opinion is that while globalization has the potential to be a source of good, we need to control the speed of it to ensure that it doesn't crush the human rights, labor rights, and environmental standards of developing countries in the process. Steps must be taken to ensure that these countries not only meet basic protections but also that these countries can oversee the protections without sacrificing the ability to build a stable country. While unregulated free trade is clearly undesirable, the worst thing for us to do would be to resort to protectionism. Protectionism will cause inflation, which will make it all the more likely that international banks will dump the dollar and switch to the Euro, which would cause a panic on the dollar and result in even more inflation. Moreover, since other countries would just respond to our protectionism with tariffs of their own, we're not going to drastically reverse the trade deficit; we'll just keep it from getting any bigger.