Category: International Trade

Blog author: jballor
Tuesday, August 30, 2005
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You may have heard of “fair trade,” one of the more recent economically-myopic efforts to act as “guarantees that farmers and farmworkers receive a fair price for their labor.”

I’ve written before about the fair trade coffee movement (especially in the Church), which has perhaps gained the most public attention. But fair traders haven’t overlooked any consumables, and the broader movement is likely to receive more attention in the future, as fair trade is a plank in platform of the ONE Campaign (see the text of the ONE Declaration). I’d like to point you in particular to this FAQ about fair trade bananas.

As the FAQ states, fair trade can be seen as the global equivalent of more locally-based minimum wage laws, and arguments against the living wage can thus be applied to fair trade: “Low conventional market prices for bananas often leave farmers unable to cover even their cost of production. The Fair Trade price is the equivalent of a living wage.”

The apparently obvious unfairness of the free trade system, in which so many people subsist on less than $1 per day, is complicated by a number of factors. One of these is that the current global system is not really all that free.

But another important economic reality is what economists call purchasing power parity (PPP). Even Ron Sider, in his 20th anniversary edition of Rich Christians in an Age of Hunger, integrates a number of economic analytic tools into his argument, including PPP (see pages 27-28). So the fair traders’ appeal to a fact, such as that farmers do not make enough to “cover even their cost of production,” cannot simply be taken at face value.

And even in instances where this is the case, the fair trade movement does not bother to take any account for why “low conventional market prices” for a particular commodity exist. In most cases, such as with coffee, the supply far outstrips demand. The world doesn’t need more coffee production. To artificially subsidize the production of yet more coffee is to flood the market even further and undermines the long term viability of the fair trade project.

For more on churches and fair trade, check out this commentary.

The European Union is running into some problems with its quota policies on Chinese goods:

The European Union will tomorrow put proposals to member states for the release of millions of Chinese garments stacked up at customs warehouses since the EU imposed import limits in June, said EU Trade Commissioner Peter Mandelson.

If the proposals are accepted, then about 70 million sweaters, trousers and bras could be released by mid-September, Mandelson said in a British Broadcasting Corp. interview.

Designed to protect European manufacturers from cheaper Chinese clothing, the quotas have led European retailers to complain they may have to find higher-cost suppliers in other parts of Asia or Eastern Europe to avoid shortages.

Kishore Jayalaban, Director of Acton’s Rome office, commented on the political scrambling that is currently underway to end this impasse on Vatican Radio today. You can listen to the report by clicking here (544 kb mp3 file).

Blog author: dphelps
Wednesday, August 17, 2005
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In a FoxNews article, Jack Spencer of the Heritage Foundation reveals some interesting finds from their year-long study of the military industry: US Defense relies heavily on a global free market for its equipment. This may seem to fly in the face of the idea that if anyone ought to buy American, it is the American government. But as Spencer points out

Congress has tried repeatedly over the years to steer defense contracts in directions that would supposedly shore up or expand America’s military-industrial capacity. Yet these efforts have nearly always interrupted the natural tides of the market and led to unintended consequences, including inefficient practices, high prices and limited choices for the military. America’s war-fighting institutions have consistently achieved better results when they have relied on the free market to decide where and how products should be made.

Simply put, for good stuff, the free market delivers. This is a fact. For a concise case study of how and why free markets work (and why subsidies don’t), check out the rest of this article here.

From last week’s McLaughlin Group (July 30), an exchange between Pat Buchanan and Mort Zuckerman on the AFL-CIO split:

MR. BUCHANAN: There’s no doubt it is a blow to the Democrats. And what Eleanor said is very important earlier. The future of the labor movement is in service workers and it’s government workers, John, because the industrial unions are dying. We are exporting all of their jobs overseas, whether it’s textile or steel or (atomic?) workers or auto workers. All of that’s going overseas. Free trade is killing the labor movement.

MR. MCLAUGHLIN: Do you think that the timing —

MR. ZUCKERMAN: I’m sorry. It’s not just that it’s going overseas. Automation has changed those industries.

MR. BUCHANAN: Automation —

MR. ZUCKERMAN: They don’t need anywhere near — two-thirds of those workers are no longer needed to produce more cars and more steel. It’s automation.

MR. BUCHANAN: Globalization is killing them too.

MR. ZUCKERMAN: That’s another part of it. And automation doesn’t apply to the service workers.

MR. MCLAUGHLIN: I want to ask —

MR. ZUCKERMAN: That’s why the future is there. I agree with that.

A little earlier Mr. Zuckerman says, “There’s been a complete transformation of the nature of the workforce in America. Thirty-five years ago, if you look at the auto workers and the steel workers, for example, 78 percent of them did not have a high school education. Today everybody is educated. It’s much less attractive to join a union, both culturally and politically.”

In addition, the move to a post-industrial, servece and information-oriented economy in America, and the resulting lack of mobility and innovation in some places (like Michigan), has played a large part in driving down union membership.

Blog author: jballor
Thursday, July 28, 2005
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Here’s a great interview from the Marketplace Morning Report with Chris Farrell, in which he argues for the lifting of trade sanctions against dictatorial and oppressive regimes. He compares the cases of Cuba and China, in which two different strategies have been used, with vastly different results.

We need to “stop the policy of broad based sanctions against nations that we don’t like,” says Farrell. This is directly opposite of the view, for example, which primarily blames economic engagement and the concern that, in the words of Kai Ryssdal, “some of these governments will be propped up.”

This is something the Acton Institute has been talking about for years. Read Rev. Robert A. Sirico’s “It’s Time to Do Unto Cuba as We Do Unto China,” from The Wall Street Journal, July 5, 2000.

Blog author: dphelps
Thursday, July 28, 2005
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Close at Home

The House of Representatives voted early this morning (12:03 am) to approve the Central American Free Trade Agreement (CAFTA) after weeks of intense lobbying on both sides. The final vote was a close 217-215.

My predictions: somehow, any dip in employment (if there is one) in the next six months will somehow be linked to CAFTA by its detractors. Detractors will attempt to take the moral high ground in American politics in ’06 and ’08, and even if we experience greater prosperity as a result of CAFTA, the hills will be alive with the sounds of “Where are the jobs?” and “I told you so.”

But here’s the other side of it that detractors will not draw your attention to in coming months: Central Americans will have access to cheaper goods. Cheaper goods mean higher productivity. Higher productivity means more wealth creation. More wealth creation means more prosperity, less poverty, and friendlier neighbors. Why friendlier? Because now, Central American workers have greater access to something that is indespensible in the market, something that affirms their dignity as workers and as persons: freedom. Free trade is nothing more than individuals and bodies excercising the truth about themselves, that they are free beings and ought to come into agreements freely, without governmental impediments like tariffs.

Here’s to free trade and our success together as neighbors.

John Paul II gave us all a tremendous gift by endorsing the terms Culture of Life and Culture of Death. But as with all great gifts, we must guard these terms carefully so as not to wear them out with misuse, robbing them of their relvence. Unfortunately, this is precisely what is happening in the current debate over CAFTA. A group called Catholics for Faithful Citizenship claims the following: “Clearly, supporting CAFTA is inconsistent with upholding a culture of life.” They provide a list of vague quotes by a Colorado bishop and conlcude (somehow–I cannot quite follow their reasoning) that free markets are “clearly” inconsistent with a culture of life.

To jump immediately to rhetoric like this–and what’s more, to do so without an actual reasoned argument behind it!–is not only irresponsible, but smacks of trite political lobbying. If this group is truly concerned with a better society, they will consider the freedom inherent in the people for which they claim to advocate and allow them fair access to greater markets. They ought to use some economic prudence here instead of resorting to sound-bite politics, throwing around “culture of life” as if it were the latest political buzzword.

Instead, they have slapped this powerful term onto their half-reasoned view of CAFTA, capitalizing on the term’s moral connotative power, using it to advance a half-truth. It is crucial that sound economic thought is employed by Christians before tossing out irresponsible rhetoric involving our most powerfully relevent terminology. Otherwise, we appear to be no different than other flapping mouths blasting the landscape with an irrelevent wind.

The Interfaith Working Group on Trade and Investment, a Washington-based amalgam of left-liberal religious activists, has asked the U.S. Congress to reject ratification of the Central American Free Trade Agreement. Here’s a representative statement: “Religious leaders boldly stood with impoverished people and called today for sustainable development in Central America and respect for the integrity of Creation.” Some of our best friends are impoverished?

In this group’s statements, there’s scarcely an intelligible economic thought to be found or, for that matter, a practical understanding of what makes business part a functioning society that creates wealth not only for owners, but for workers, too.

Let’s turn the tables. How would these religious leaders respond to theological platitudes tossed at them from people who make their living in finance and industry? Imagine an economist trying to pass a graduate seminary exam with statements such as, “God loves us, that’s why” or, “We should all be nice to people.”

So, imagine a business person sitting in the pews on Sunday and the pastor hauls out the Interfaith Trade Group’s Statement on International Trade and Investment in lieu of a real sermon. This business person learns that the free economy has brought about “mounting global inequities” and “growing disparities and injustices” and we should be working for “distributive justice.” And so on.

A better way to prepare a sermon on the justice of trade would be to first absorb some real understanding. Maybe start by reading this analysis from the Dallas Fed which informs us that:

Entering into regional trade agreements has well-documented positive effects on participating nations, rich or poor, even though the impact on the United States would be lessened by the small market sizes of the DR-CAFTA countries. From the DR-CAFTA countries’ perspective, the agreement’s impact would be large. Even the most populous of these nations, Guatemala, has less than half as many people as the state of Texas. Moreover, despite what the habitual detractors of trade liberalization claim, there is much evidence that trade openings typically have positive effects on income per capita — generally including that of the poorest fifth of the population, even in developing countries.

Increasing the opportunities for trade is precisely what people of faith should be demanding for the impoverished. Unless we want the impoverished to stay that way.

Read Rev. Robert Sirico’s analysis of the Religious Left’s drive to derail CAFTA in “Unholy Opposition: A Moral Case for CAFTA” on National Review Online.

Blog author: dphelps
Thursday, July 21, 2005
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Move over, sir. The Bishop is in town.

Have you noticed the most recent television ad against CAFTA, the Central American Free Trade Agreement? In it, detractors very wittily capitalize on the rhyme with NAFTA and present it as another ‘sucking sound’ of jobs leaving America. It seems to me a little sad these folks cannot think of actual arguments against this policy and must resort to 13-year-old Ross Perot witticisms to make their point.
Or do they? To bring in a moral perspective, Democrats in Congress asked Bishop Alvaro Ramazzini of San Marcos, Guatemala to testify on CAFTA. Read here for Fr. Robert Sirico’s answer to the Bishop’s questionable advice.

From an interview on Zenit.org with Ettore Gotti Tedeschi, the president of the Italian division of Santander Central Hispanic Bank and a professor of the Catholic University of Milan, discussing African debt relief:

“What should have been done was to put these countries in a condition of being able to pay the debts, even if in 1,000 years, helping them to create the necessary wealth for their own survival, as well as for their own dignity as human beings, who do not want to feel incapable and failures, in need of non-repayable charity…the G-8 members should listen to the suggestions of Pope Benedict XVI, who shows himself to be the most concrete “statesman,” inviting them to take concrete measures to help Africa, appealing for the just distribution of the goods of the earth. And, in order to distribute them, it is necessary to make them bear fruit, ‘to plow, plant, water and harvest.'”