Sunday, March 10, 2002

Trading Blows

Natalie Solent says that we should have some outrage over the free trade decision because it is:

wilfully keeping the poor of the world from making an honest living just to buy the temporary favour of voters in marginal states

Let's sidestep the fact that the poor of the world have got other honest ways to make a living, if less well renumerated than churning out steel. Growing cassava ain't fun but its not criminal either. I don't even want to get into the argument that the "voters in marginal states" are supposed to be listened to in a, erm, democracy. Let's also dodge around the idea that as a sovereign state America has the right to act in what it perceives to be its own interests (no, I don't perceive this to be in America's interests, but I'm not America). The last point is the reason why I can't get worked up about this.

Let's instead look at Mrs Solent's views on free trade. To repeat, the decision is bad because it's:

wilfully keeping the poor of the world from making an honest living just to buy the temporary favour of voters in marginal states

Now while I admire Mrs Solent's concern for the teeming masses, I think that her defence of free trade is dangerous. Why? Because it misses the real benefits of free trade.

The objection is two fold. The first is the treatment of the Holy Orthodoxy of Free Trade as a welfare programme for the Third World, a government sized Tradecraft. That is simply a secondary effect. Free trade benefits the consumers in the free trading country. If the difference is between getting your children into college and some poor blighter getting off a farm in Mali, where would you vote? If the whole free trade thing is sold as primarily benefiting poorer countries don't be surprised if it all goes rotten when the economy turns down.

Then there's another, more insiduous, fallacy - that free trade is good for producers. Not entirely true. Free trade is good for those producers who can expand their markets, because other countries are lowering their trade barriers. Its also good for some producers who use plenty of raw material, because they are acting as consumers. However this will be balanced out for other producers, to take a random example American steel makers, who are now facing far fiercer competition. They will, on the whole lose market share, and a good proportion will go out of business entirely. This will have a knock on effect with workers, who are for these purposes "producers".

For argument's sake lets say that this balances out, some producers benefit, some producers lose out. What then is the purpose of free trade for anyone who is not an a priori libertarian?

Well its the consumers. They will benefit unconditionally from free trade, as the wider choice means prices fall and quality increases. They would benefit from unilateral free trade as much as world free trade, but that's another argument for another time.

In the free trade equation producers break even, but consumers win big. As we are almost all both consumers and producers (or dependent on the breadwinner/producer) then we come out ahead on free trade.

So the attack of the free traders should not be on behalf of the poor third world producers, or the world trading system, or even the home producers. The attack should be on the fact that American consumers are being robbed on behalf of a tiny if vocal minority of producers.

Of course I'm not an American consumer, so I'm not going to get outraged. Thanks.


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