Category: International Trade

An op-ed in today’s NYT by James E. McWilliams, “Food That Travels Well,” articulates some of the suspicions I’ve had about the whole “eat local” phenomenon.

It seems to me that duplicating the kind of infrastructure necessary to sustain a great variety of food production every hundred miles or so is grossly inefficient. Now some researchers in New Zealand have crunched some numbers that seem to support that analysis:

Incorporating these measurements into their assessments, scientists reached surprising conclusions. Most notably, they found that lamb raised on New Zealand’s clover-choked pastures and shipped 11,000 miles by boat to Britain produced 1,520 pounds of carbon dioxide emissions per ton while British lamb produced 6,280 pounds of carbon dioxide per ton, in part because poorer British pastures force farmers to use feed. In other words, it is four times more energy-efficient for Londoners to buy lamb imported from the other side of the world than to buy it from a producer in their backyard. Similar figures were found for dairy products and fruit.

McWilliams closes with some compelling questions about stewardship of the environment, food production, and trade:

Given these problems, wouldn’t it make more sense to stop obsessing over food miles and work to strengthen comparative geographical advantages? And what if we did this while streamlining transportation services according to fuel-efficient standards? Shouldn’t we create development incentives for regional nodes of food production that can provide sustainable produce for the less sustainable parts of the nation and the world as a whole? Might it be more logical to conceptualize a hub-and-spoke system of food production and distribution, with the hubs in a food system’s naturally fertile hot spots and the spokes, which travel through the arid zones, connecting them while using hybrid engines and alternative sources of energy?

Read the whole thing, as they say.

In today’s Detroit News, Rev. Robert A. Sirico discusses free trade and the conditions it creates for peaceful and flourishing societies.

Every few years, a new round of trade negotiations hits the news, and the same debate takes place on the merits of free trade. But this time around, as we discuss a new round of trade relaxations between the U.S. and Latin America, there is an added element.

The religious left has entered to argue against free trade on grounds that it is incompatible with humanitarian concerns. Somehow, they argue, free trade rewards large corporations at the expense of all workers in all countries. They say that free trade amounts to a kind of American imperialism.

For example, a number of Catholic clerics in Costa Rica have weighed in against a free trade agreement with the U.S. on grounds that the agreement as it stands does not have a “human face.”

I admit that I can’t follow their logic. The case for free trade between nations is no different than between you and your local grocery store. All parties to the exchange benefit. What is to be gained by preventing exchanges that people want to make from taking place? Who could possibly benefit from that?

Read more on the Detroit News editorial page.

In today’s NYT: “Oxfam Suggests Benefit in Africa if U.S. Cuts Cotton Subsidies.”

“Eliminating billions of dollars in federal subsidies to American cotton growers each year would reduce American cotton production and exports, raise world prices by about 10 percent and modestly improve the incomes of millions of poor cotton farmers in Africa, according to a new study by Oxfam, the aid group.”

About how many other industries could a similar thing be said? It’s also good to see that some of these multinational aid groups sometimes focus on liberalizing trade, rather than simply on direct government-to-government compensatory aid packages. Apparently Oxfam “has long campaigned for reductions in rich country agricultural subsides as a means to fight rural poverty in the developing world.”

One reason Oxfam is critical of bilateral free trade agreements is that they “do not address the adverse impacts of rich-country subsidies on poor countries through dumping, or the plethora of non-tariff barriers that continue to impede access to rich-country markets.” Their claim is that the bargaining power of individual developing nations is reduced under such agreements, so that the developing nation ends up giving up concessions to the wealthier nation, while the latter does no such thing. Reducing tariffs without addressing subsidies and other “non-tariff barriers” works to undermine the interests of developing nations.

The NYT piece ends on a bit of a pessimistic note, and no doubt the elimination of subsidies alone will not be enough to combat the grinding poverty that is so prevalent in the developing world. But it would do a lot to level the playing field and give resources and products from the developing world a fighting chance in the global market.

“Subsidy reform alone will not resolve all the challenges facing the cotton sector,” Oxfam said. “But it could significantly ease the burden on poor cotton farmers struggling to support their families.”

Last Friday, the New York Times editorialized in critique of American tariffs, which it says “raise the price of goods and are all too often based on outdated political considerations that defy logic and good sense.”


Blog author: jballor
Friday, April 13, 2007

In the film The Pursuit of Happyness (review here), there’s a scene where Will Smith’s character arrives late for an interview with a stock brokerage firm and has no shirt on. The conversation goes like this:

Martin Frohm: What would you say if man walked in here with no shirt, and I hired him? What would you say?

Christopher Gardner: He must have had on some really nice pants.

Well, what would you say if you interviewed someone and they wore a suit looking like this?

Aaron Igler shows off the suit to thunderous applause. Photo: Paul Adams

This is the end result of a project undertaken by Kelly Cobb, an educator and designer at Drexel University. The task was to try and create a suit using only materials and workers within a 100-mile radius. Here’s the full story from Wired (HT: Mises Economics Blog).

As the piece relates, “Cobb’s locally made suit turned into a exhausting task. The suit took a team of 20 artisans several months to produce — 500 man-hours of work in total — and the finished product wears its rustic origins on its sleeve.”

Seriously, it looks like an Unfrozen Caveman Lawyer suit or something. The exercise is really an object lesson in “the massive manufacturing power of the global economy.”

For most of us, that’s a good thing. Others, though, might think that “how far removed we are from what we wear” is an overwhelmingly negative feature of modern existence.

But if nothing else, the 100-mile suit should offend your aesthetic, if not your moral, sensibilities.

Blog author: jballor
Monday, April 2, 2007

A couple weeks ago the NYT magazine ran a piece by contributing writer Tina Rosenberg, which attempts to outline some of the ways in which “everyone in a wealthy nation has become the beneficiary of the generous subsidies that poorer countries bestow upon rich ones.”

What does she mean? In “Reverse Foreign Aid,” Rosenberg asserts that there are five major forms of poor-to-rich international subsidy. The first is the tendency among poorer nations to build-up great reserves of hard currency, often in the form of T-bills. The problem here is that there is an opportunity cost in holding the low-return but ultra-secure US Treasury bills: “All the money spent on T-bills — a very substantial sum — could be earning far better returns invested elsewhere, or could be used to pay teachers and build highways at home, activities that bring returns of a different type.”

A second form of subsidy is in the WTO requirements that member nations abide by copyright and intellectual property protections. “There are good reasons for countries to respect intellectual property, but doing so is also an overwhelming burden on the poorest people in poorer countries,” writes Rosenberg.

So-called “tax holidays” form a third kind of subsidy, in which poorer nations offer tax incentives and various other breaks to multi-national corporations to entice them to bring their operations to their country. Rosenberg writes, “Since deals between corporations and governments are usually secret, it is hard to know how much investment incentives cost poorer countries — certainly tens of billions of dollars. Whatever the cost, it is growing, as country after country has passed laws enabling the offer of such incentives.”

Rosenberg also describes brain drain as a form of subsidy, in which skilled professionals who are trained in poorer nations emigrate to wealthier ones. She also points out the adverse effects that domestic subsidies of various industries, such as agriculture, can have on poorer nations. Somehow or other this direct subsidy becomes a “reverse subsidy” because “corn, rice or cotton exported by rich countries is so cheap that small farmers in poor countries cannot compete, so they stop farming.”

And finally, Rosenberg calls the disproportionate negative effects of climate change on poorer nations the “ultimate subsidy.” She writes, “American energy use is being subsidized by tropical coastal nations, who appear to be global warming’s first victims.”

The essay is really a bit uneven. It’s hard to fathom why, for example, cheaper imports of agriculture commodities from wealthier nations should be seen as “reverse” subsidies. Just because a certain practice or policy negatively affects a poorer country doesn’t mean that it is a “reverse” subsidy. And just because wealth is created in the first world doesn’t mean that it comes at the expense of someone in the third world, although there are good reasons to see that Rosenberg is right about the consequences on agricultural sectors in developing nations.

With respect to the second form of “reverse subsidy,” Rosenberg is really describing a kind of competition between developing nations, and the beneficiaries aren’t so much wealthier governments but large multi-national corporations. Of course, many critics of the developed world can’t or won’t distinguish between these two (all the better to fit into the picture of a growing neo-liberal “empire”).

Brain drain is a real problem for the developing world, but as is the case with so many of these instances of “reverse subsidy,” Rosenberg is pointing to a legitimate issue or concern but failing to ask the right kinds of questions, and thus providing some questionable solutions (a neo-Keynesian answer for T-bill stockpiling?). Why, for instance, are professionals leaving developing nations to work in places like the United States? In many, if not most, cases money surely is a motivation. But there certainly are other factors at work, and the potential for greater income isn’t a sufficient explanation as to why so many people leave their home, friends, and family to go live in a foreign country. Indeed, large-scale migration out of a nation is a pretty reliable indicator that something is wrong in the native country.

And maybe the fact that poorer nations don’t respect copyright and IP rights is as much a contributor as it is an effect of their lower economic status. How can you expect to be a country that fosters innovation if there are no legal protections for innovation and invention?

A recent NBER paper, “Globalization and Poverty,” examining some of these issues makes the case that globalization is a complex phenomenon and that in some cases segments of the poor can be made worse off. This is no doubt true, and the merit of Rosenberg’s piece is that it points out some of the real-world issues that a globalized economy faces. The question remains, however, whether at least some of these negative effects might be mitigated by a freer and more liberalized system of trade rather than one which relies on subsidies, tariffs, and protectionism.

Google recently announced that it has purchased the Trendalyzer software from Gapminder, a Swedish non-profit (HT: Slashdot). Trendalyzer is the brain-child of professor Hans Rosling, who was lecturing on international development “when it struck him that statistics were an underexploited resource, often presented in an incomprehensible fashion. To solve the problem he developed – along with his son – a new kind of software.”

One interesting aspect of this purchase is that the software’s inventor won’t profit from its sale, since it was run under the auspices of a non-profit and was financed by public money. “It’s not an operating business that was sold, just the software and a web site. Although I would gladly accept that kind of money,” said Rosling.

To see the software in action, see the video of a lecture given by Rosling in February of 2006. Don’t just pay attention to the software, however. Rosling has some pretty important observations about how the West views the “developing” world.