Many are aware of the issues of global poverty (at least if you follow this blog at all). However, one of the largest contributing factors to poverty receives relatively little attention: trade injustice. I recently wrote about the definition social justice, and how it should point us to look for causes of suffering, rather than just conditions. Trade injustice is almost certainly one of the key causes of poverty. However, it is also a rather abstract and complex issue. Seeing a starving child, and offering food money to help is much simpler than dealing with the nuances of international trade, but ultimately if we long-term benefits for others, the root causes must be considered. Lately I have been reading and researching to try to understand this issue better.
So what is trade injustice? Simply put, it is when there are barriers to fair and free entry into markets. This has become a significant issue in the midst of globalization. In general, globalization has a positive effect. Opening up trade between countries provides increased opportunity for all participants to buy and sell, affording larger markets to sell goods, and more options to buy from. However, globalization has rapidly brought together markets from incredibly diverse countries and markets, and because of these disparities, suddenly thrusting together markets can have unintended and negative consequences. In particular, as countries have negotiating more open trade, richer countries have often had the upper hand in negotiations and have used their leverage to craft trade agreements that are strongly in their favor. These agreements have brought large benefits to richer developed countries, while poorer countries reap little benefit and are sometimes actually harmed.
The impact of trade justice is significant. Precisely enumerating the effect is notoriously difficult since it’s effect is on economics, which is composed of a complex mix of many factors, but we can be sure that is large. Oxfam studies have conservatively shown the cotton subsidies alone have caused $250 million annual profit loss for western Africa. The International Food Policy Research Institute estimates subsidies and protectionism costs $24 billion in lost agricultural income for developing countries. Mark Malloch Brown, former head of the United Nations Development Program, estimates that these farm subsidies cost poor countries about $50 billion a year in lost agricultural exports. Both of these estimates are more than all of that is given to international charities combined. Let’s consider for a moment even a moderate estimate of the impact of US trade injustices, and assume that we only induce a few billion dollars of economic loss to developing countries. This means that for every dollar you give to international charity effort, over half of it is simply cancelled out or offset by the impact of the economic loss they have experienced due to our trade policies. For anyone serious about helping the poor, trade injustice should weigh heavily on our minds.
A central factor in international trade is tariffs. Tariffs are taxes on imported goods. To give a very (over)simplified description of their effects: tariffs provide importing countries with public revenue, and can protect domestic industries from competition, but also generally reduces the free market opportunities. Typically tariffs have a negative impact on other (exporting) countries as they have to reduce prices to compensate for these taxes. Therefore reducing tariffs almost always brings strong benefits to other countries, but is mix of pros and cons (possibly overall negative or positive) for the importing country.
Consequently tariff reductions are somewhat of a back-scratching exercise. Cutting your own tariffs benefits others more than yourself. Therefore tariff reductions are usually achieved through bi-lateral or multi-lateral agreements. Most economists agree that reducing tariffs is beneficial, but doing so too quickly can harm the importing country.
Because tariffs are a force against other countries to protect oneself, ethically tariffs should only be used by developing countries to protect their developing industries until they are ready to compete with richer countries. For developed countries to impose tariffs (except in the case of specific target sanctions focused on eliminating corruption, human rights abuses, etc.) on developing countries is simply immoral.
Unfortunately the US continues tariffs against many developing countries, perpetuating trade injustice. Fortunately these US tariffs have gradually and continuously decreased over the last few decades, and we continually are imposing less tariffs. Still we need to push forward with decreased tariffs, particularly on developing countries, and we need to do so without forcing developing countries to immediately reciprocate.
Agricultural subsidies may seem like a purely domestic issue, but in fact this is very much an international issue, and has a very similar impact to tariffs. Subsidies infuse money into agriculture, giving recipients an artificial advantage, and undermining international competition. This would not be such a serious issue, but for many (or most) developing countries, agriculture is a primary industry, one of the few industries where developing countries might otherwise have a comparative advantage. Agricultural subsidies represent government-induced distortions to the international free market, devastating agricultural opportunities to those who most need them.
While US tariffs have been declining over the last few decades, agricultural subsidies have not, in fact they have been continually increasing. As mentioned earlier, the impact of these subsidies has been closely studied, and particularly subsidies in the cotton industry have been directly linked to significant economic setbacks to western African countries.
The solution here is quite simple. We need to reduce agricultural subsidies. I don’t believe we need to instantly remove all subsidies. Cuts should be gradual, and weather/drought related subsidies probably should still exist to help stabilize the market and make it more predictable, but subsidies should be decreased. In a time where we are working hard to reduce the federal deficit, agricultural subsidies should certainly be included in cuts.
Both tariff and agricultural subsidy reduction should be a completely bi-partisan effort. Conservatives (increasingly) value reduced government intervention, and both tariffs and subsidies represent government interventions that negatively distort the economy. Reducing these interventions should match well with this ideology. Liberals value economic justice, and of course reducing these tariffs and subsidies both serve economic justice. As an example, both President Obama and conservative leader Representative Paul Ryan have sought for reduced agricultural subsidies, but the farming lobby has essentially killed their efforts.
What about Fair Trade?
The fair trade movement has been valiant effort to correct trade injustice through individual choices, without having to resort to politics. Indeed, this is serious issue, and a very noble response; people standing up to injustice with the financial sacrifice of paying more for products, putting their money where their mouth is. And while it may do some good, unfortunately, there is little evidence to suggest that more than a small fraction of the higher price of fair trade goods actually translates into increased profits for the poor that it is supposed to benefit. In fact many argue that fair trade products like coffee, are actually hurting the poor by pushing people into a dead-end industry that already has excess supply and is consistently decreasing in demand. With every fair trade worker adding to the coffee supply, numerous other coffee workers are harmed by decreased profit margins (overall, I personally don’t believe that net impact is negative, and there is most likely a wide range of impacts, some fair trade probably have more positive impact, but the negative effects definitely further erode from even the small benefits that some fair trade products might otherwise afford).
Given a simple isolated choice between a normal product and a fair trade product, the fair trade product may be slightly more ethical, but if your goal is to do the most good, considering this question in isolation is a false choice. In almost every case that where there is any significant difference in price, using the money saved by purchasing a cheaper product, and giving it to a charity (that serves the poor in the export country) would have a much larger positive impact than buying a fair trade product.
So is the fair trade movement a waste? I don’t think it needs to be. However, fair trade needs to be properly framed. Fair trade is not going realize trade justice simply through economic force, but it can represent a tremendous voice dissenting against trade injustice. It is worthwhile to compare fair trade to the Boston tea party. No one who participating in the Boston tea party seriously thought that dumping tea in the bay would somehow directly improve their economy or correct trade issues. The whole point of the tea party was that it was a revolt. The dumping of tea wasn’t a sustainable economic movement, it was protest. Everyone knew it was pointless if it didn’t end in an actual change in trade/tax policy. It was bold statement saying that things must change.
Likewise, we can’t pin our hope on the fair trade being a sustainable economic model itself. But rather fair trade has the potential to change the world as a protest, a voice, shouted through dollars spent, votes cast, and works spoken, making a point in unison. So remember that simply buying fair trade is not enough. You won’t change the world by drinking fair trade coffee. However, by using fair trade as platform with a voice explicitly condemning and speaking out against trade injustice, and demanding real change in policies by leaders, we can make a difference.
What Can We Do?
For better or worse, I believe international trade injustice is more the result of public policy than due to corporate or individual decision spending decisions. Consequently, the greatest potential impact is to be found in pressuring our representatives towards free and fair international trade (without demands of reciprocation) that give developing countries maximum opportunity to develop their industries, less US protectionism, and reduced agricultural subsidies.
In fact, right now is an extremely important opportunity to speak out about agricultural subsidies. Every five years, there is a “Farm Bill” that sets the USDA’s budget and determines the monies available for subsidies. The 2012 Farm Bill is currently being worked on in congress, so important decisions are about to be made. The 2012 Farm Bill does in fact include proposed cuts to agricultural subsidies. Now is the perfect time to contact your congressman and let them know that you support these cuts. Oxfam has email-your-congressman page that you can use and write your own message.
(It should be noted the Farm Bill covers a very wide range of different programs with different impacts. The currently proposed bill also includes $4.5 billion SNAP cuts which I am highly opposed to and would significantly increase domestic hunger. It also may potentially include food aid reforms to may provide more or less efficient delivery of vital international food aid, check out this page from Oxfam for more information.)
In a way, the combination of trade injustice and charity is like stealing a man’s wallet and then graciously offering to buy him dinner with money we found in it. If we truly care about the world’s poor, and we want to make maximize our impact, fighting for a trade justice is a critical part of the overall battle to end poverty and help the poor and weak.
Currently I am reading Fair Trade For All (which is more in-depth analysis of world trade agreements and international trade policies) and read Fair Trade? Its Prospects as a Poverty Solution (a strong indictment of the failure of fair trade to achieve any real measure of social justice), if you are curious about sources. As I read more, I may post more about this subject.