Friday, June 16, 2006

Free Trade v. Fair Trade

I got into a fairly heated argument in Spanish class today. Actually, it should be referred to as "compounded stupidity" because anytime you try to argue in Spanish with a couple of gringos, well, you're going to have misunderstandings.

At any rate, two gringas took exception to my claim that "fair trade" is little more than a stepping stone to "free trade". Ok, that's not exactly how I described it. I said that fair trade is similar to free trade - which I suppose passionate (and idealist) advocates would take exception to (and of course, I take exception to them). Their argument was that "fair trade" was antithetical to free trade because it opposed lifting trade barriers, for example. My claim was that "fair trade" is merely a stepping stone to "free trade" because it seeks to protect vulnerable, less advantaged countries from economic powerhouses like the US and Europe, as least in the short term.

Maybe I'm wrong. But if I am, I shouldn't be. And here's why.

It's totally unrealistic to assume that the inevitable global march to free trade can be arrested by a handful of semi-violent protesters or clever NGO's that operate in the developing world. In fact, I believe it's irresponsible to dedicate vast amounts of time, energy, capital, and intellectual prowess directed at achieving that goal. Instead, passionate advocates should focus on integrating their "fair trade" ideas into the WTO free trade process. I'm totally in favor of protecting vulnerable developing markets from economic giants that actively subsidize their domestic industries...for a time, at least. But at no point will I argue that free trade should be halted or reversed.

Here's an example. Colombia recently completed a free trade deal with the US. While the exact terms of the deal are unknown (it hasn't been released publicly), it is clear that there will be some tangible benefits. For example, cars and electronics are more expensive in Colombia than in the US. Why is that? Well, simply, because of trade tarriffs. If the new deal removes those tarriffs, those prices will drop - in some cases by about 30%. That's good for Colombian consumers and US industries.

Of course, the flip side is that the agreement may negatively impact Colombian agricultural industries because the US has large subsidies that make US grain, for example, artificially competitive. That's a bad thing. The real risk is that US ag will jeopardize the longterm competitiveness of Colombian industries - but not because the US companies are better, smarter, or work harder. This is where "fair trade" comes in. Free trade doesn't mean that all trade has to be tarriff free immediately. Some can be protected for a time, especially when it's in the best interests of the regional or global economy.

And this is where the "free trade" activists divorce themselves from reality. See, no examination of global macroeconomic forces can ignore those very forces. It's inconceivable that someone could advocate altering the global march to free trade without examining the long term development impacts and economic factors of the dominant nations. What I'm aiming for here is that rich nations don't do jack squat for charity - they act for self-interest. Like it or not, the annals of history testify that strong nations do good things when it's in their interests, as well as the interests of the weaker parties. So, when I hear overly optimistic and ideological leftism, well, it pisses me off because I feel it does a disservice to the very subject they care so passionately about and taints leftists as myopically idealistic and disconnected from reality.

But hell, I'm a pragmatist, so maybe I just can't ever understand idealism in it's varying forms. Of course, don't take my word for it. Just take a gander at the Millenium Challenge Corporation. As best as I can tell, it's a realistic initiative to provide economic development to underdeveloped nations in the hopes that they can join the global economic community.


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