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Some excerpts on trade.

Book information
Tim Harford, The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor--and Why You Can Never Buy a Decent Used Car! Oxford University Press, 2007. Excerpts here for educational purposes only (please buy this fantastic book!) and constitutes fair use.

(page 207)
Contrary to popular belief, it is simply not possible for trade to destroy all of our jobs and for us to import everything from abroad and export nothing. If we did, we would have nothing to buy the imports with. For there to be trade at all, somebody in America must be making something to sell to the outside world.

(page 208)
A more extreme example may clarify things further. Think of a country whose government is very keen on self-sufficiency. “We need to encourage our local economy,” says the Minister for Trade and Industry. So the government bans all imports and patrols the coast to prevent smuggling. One effect will be that a lot of effort will be devoted to producing locally what was once imported: this certainly is encouragement to the local economy. But another effect is that all of the export industries will quickly shrivel and die. Why? Because who would want to spend time and money exporting goods in exchange for foreign currency, if nobody is allowed to spend the foreign currency on imports? While one part of the local economy is encouraged, another is crippled. The “no imports” policy is also a “no exports” policy. And indeed, one of the most important theorems of trade theory, the Lerner theorem, named after the economist Abba Lerner, proved in 1936 that a tax on imports is exactly equivalent to a tax on exports.

(page 211)
Trade can be thought of as another form of technology. Economist David Friedman observes, for instance, that there are two ways for the United States to produce automobiles: they can build them in Detroit, or they can grow them in Iowa. Growing them in Iowa makes use of a special technology that turns wheat into Toyotas: simply put the wheat onto ships and send them out into the Pacific ocean. The ships come back a short while later with Toyotas on them. ... Either way, auto workers in Detroit are in direct competition with farmers in Iowa. Import restrictions on Japanese cars will
help the auto workers and hurt the farmers.

(page 213)
Although trade with and investment in poor countries has risen rapidly in recent years, we should be clear that both trade and foreign investment overwhelmingly takes place between the richest countries, not between rich and poor. People look at their Nike shoes and assume, perhaps, that everything is made in Indonesia and China. However, far more money is spent importing wine from Australia, pork from Denmark, beer from Belgium, insurance from Switzerland, computer games from Britain, cars from Japan, and computers from Taiwan, all carried on ships from South Korea. These rich countries are mostly trading with each other. Mighty China, with about a quarter of the world’s population, produces less than 4 percent of the world’s exports. Mexico, a country of over a hundred million people, in a free trade agreement with the world’s largest economy, the United States, and in a situation of rapidly expanding trade as the US economy was red hot in 2000, exported less than gallant little Belgium. Meanwhile India is nowhere at all, with a billion people producing less than 1 percent of world exports. And these figures are for physical merchandise: if you look at trade in commercial services, fuss over “offshoring” notwithstanding, developing countries participate even less.

(Page 217-218)
Fertilizer use vs agricultural protectionism
If the Common Agricultural Policy and other examples of agricultural protectionism were abolished, there is little doubt that the world’s environment would be substantially improved as the intensity of farming could be reduced. At the same time, both European consumers and third-world farmers would get a much better deal.

(Page 222, On sweatshops)
Hours are long. Wages are pitiful. But sweatshops are the symptom, not the cause, of shocking global poverty. Workers go there voluntarily, which means—hard as it is to believe—that whatever their alternatives are, they are worse. They stay there, too; turnover rates of multinational-owned factories are low, because conditions and pay, while bad, are better than those in factories run by local firms. And even a local company is likely to pay better than trying to earn money without a job: running an illegal street stall, working as a prostitute, or combing reeking landfills in cities like Manila to find recyclable goods.

... [NYC's resolution banning sweatshop-made products] can only harm sweatshop laborers: they’ll be out of a job and—literally, for those in Manila—back on the trash heap. Of course, it will be good news for textile workers in rich countries, who’ll get the business instead.

(Page 225-226)
If free trade really has so many benefits, why does the world still have so many trade barriers? Why don’t politicians grab easy votes by lowering trade barriers? Why did the Japanese have to be forced to implement a policy that almost doubled the country’s income? Unfortunately, in most countries, rich and poor, special interest groups with disproportionate influence have reasons to oppose free trade.

Tariffs tend to impose a small and disguised cost on most of the country, in the form of higher prices, and a further cost on foreigners, who do not have a vote. The benefits of the tariffs are substantial for a narrowly concentrated group of people, often sectors with organized unions and large businesses. If voters are well informed and fully understand economic theory, then in a democracy the protectionists will be voted down. But if people are not well informed about the costs of tariffs imposed on them, then given the small effect on any particular voter of any particular tariff, the tariff may not even enter their thoughts—especially if the campaign for trade restrictions is disguised as a campaign about sweatshops. Reform efforts may also be stymied by inertia and nervousness on the part of these poorly informed voters, while the special interest groups are well aware that they stand to gain from protection and find it worthwhile to devote substantial funds and lobbying effort to defend their narrow interests.

In a healthy democracy special interests should have less power than in a fragile democracy or an undemocratic country, like Cameroon. If special interest groups are part of the explanation behind trade barriers, we might expect countries with better-established democracies to have lower trade barriers.

The numbers tell us exactly that. In 1999, the United States had average tariffs of 2.8 percent. In the European Union, average tariffs were 2.7 percent. In the emerging tiger, Korea, 5.9 percent. In Argentina, allegedly a paragon of economic reform, 10.7 percent. In the giant economies of China and India, 15.7 percent and 29.5 percent respectively. We have already heard that the poverty and corruption of sad little Cameroon is not being relieved by staggering tariffs averaging 61.4 percent.

(Page 229, On how to permanently help the very poor)
Because coffee is such an easy business to get into, I am willing to make a prediction: coffee farmers will never be rich until most people are rich. If coffee farmers became rich but other farmers or workers in sweatshops were poor, the others would switch to farming coffee. High coffee prices will always collapse, until workers in sweatshops become well-paid blue-collar workers in skilled manufacturing jobs, who don't find the idea of being even a prosperous coffee farmer attractive.

We need to understand that narrowly focused initiatives on "fair trade coffee" or "sweatshop-free clothes" will never make a substantial improvement to the lives of millions. Some, like the campaign to prevent New York City from buying uniforms from poor countries, will actively cause damage. Others, like the numerous brands of fair trade coffee, are likely to improve the income of a few coffee producers without causing a great deal of harm. But they cannot fix the basic problem: too much coffee is being produced. At the slightest hint that coffee farming will become an attractive profession, it will always be swamped with desperate people who have no alternative. The truth of the matter is that only broad-based development of poor countries will ever lift the living standards of the very poor, increase coffee prices, and improve wages and labor standards in shoe factories.

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