Making Trade Fairer Is More Important Than Making It Freer
The argument under international trade policy that “Making trade fairer is more important than making it freer” is a sound policy proposition that has microeconomic and macroeconomic implications on the performance of local and international economics in aspects of employment, minimization of job losses, better provision of secure economic environments, cushioning the poor from the adverse effects of unfair working conditions, and better governance of trade.
The policy of free trade is defined as “unrestricted international exchange of goods” (Theory of Free Trade, 2010). Despite the current trend in the policy of internationalization of trade, it is evident that making trade more freer than fair has had economic repercussions on a number of nations either with or without the absolute advantage of production for both developed and developing nations.
Free trade in the context of the current study is based on governments allowing the forces of demand and supply to determine the movement of goods and services within their countries, without any government intervention or restrictions (Dewey 1975).
On the other hand, making trade fairer is based on the underlying principle of government intervention or imposition of trade restrictions at certain instances, thus limiting the amount of trade and restricting the free play of the forces of demand and supply on goods and services across countries on the macroeconomic level (Theory of Free Trade, 2010).
It is imperative to note that the forces of demand and supply underlie the operation on the net movement of products from one country to another, thus affecting the net supply and demand of imports and exports.
Thus, free trade allows for the pricing of goods and services to be set by the forces of demand and supply. In essence, it also relates to the entry and exit of firms into and from the market with a typical example being the entry of Chinese firms and exit of firms from the apparel industry in the United States (Bryan & Farrell 1996).
Making international free trade freer has had its toll on developed and developing economies in terms of employment and loss of jobs. Typical examples include job losses in the USA (Theory of Free Trade 2010). Despite the USA having a developed economy compared with other countries such as China, India, and Brazil, to mentioned a few, it is evident that making trade freer has had several American Jobs being sent oversees where the cost of production and labor is a fraction of the American job market (Ohmae 1995).
Typically, that is based on the comparative advantage the developing nations have had over the USA. One of the comparative advantages experienced by the US is associated with job displacements. Job displacements include the shifting of manufacturing jobs and other jobs from the one country to another. A typical example is the shifting of jobs from the United States to other countries such as China (Zimmerman n.d; Theory of Free Trade 2010; Glickman & Woodward 1989).
Statistical evidence provides data on the displacement of jobs over the years with the underlying reason being to make trade freer rather than fairer (French 1997). A typical illustration of the implications of making trade freer is demonstrated in the trend observable in table one below.
Table 1: Economic Impacts of the KORUS-FTA
A trend is observed showing a significant decline in US domestic exports which has declined by 92% between 1997 and 2010, based on the trade imbalance that is noted to be 485% in a similar period. That is also explained in the average annual change in the trade balance, which does not favor the American economy.
On the other hand, a significant rise in US imports is observed in the same period to be 169%, a steep rise as a result of freer trade. It is also evidently clear these changes in volume of imports and exports, and the trade imbalance between the United States and other countries, has had implications on the job market.
Observations on the statistical data shows that job losses due to US domestic exports is 51% in the 1997 and 2010 period, while the U.S. imports for consumption-jobs displaced is 135%. Overall, the net job loss in the US economy is 566%, showing the adverse effects of making trade freer rather than fairer.
In addition to that, it is evident the average annual job losses in the United States is estimated at 10% (Theory of Free Trade 2010).Thus, job losses arise in the form of job displacements. Taking the United States as a typical example, making international trade freer has already indicated a number of adverse effects on job losses in the United States (Scott, 2011).
While proponents of free trade made freer argue that export related jobs could be created in the event of allowing for free trade with many countries, evidence has already shown the contrary. Statistical data shows stark figures that are out of favor with making free trade freer. According to a number of concrete findings since the United States signed the free trade agreements, by 2003, had lost over 5.5 million manufacturing jobs while 50,000 manufacturing companies had registered trade deficits in the range of $273 million in 2010 with China.
Results continue to show that making free trade freer has caused an increasing trend in trade deficits between the US and china between the year 2000 and 2010 to rise from 87 million dollars to the $273 million respectively (Scott, 2011). Thus, the trade deficits showing a rising trend with time between the United States and China have had adverse impacts on many jobs in the United States (Theory of Free Trade 2010).
A typical example is the loss of manufacturing jobs in North Carolina. Studies show that between 2001 and 2007, jobs in the service industry were on the rise, but jobs in the manufacturing industry, the highly paying jobs were steadily on the decline. Typically, that was due the manufacturing industry becoming more vulnerable to imported goods that locally manufactured goods (Scott, 2011). The net exporter of such competing goods, based on competitive advantage due the low cost of production was China.
Thus, by 2010, the manufacturing economy of North Carolina had registered a significant decline. One example to demonstrate the net impact on the manufacturing industry and consequently the loss of highly paying jobs in North Carolina were the job losses in the apparel industry by 2010 (Scott, 2011). By 2002, the United States had taken the third position in apparel manufacturing from the first position it had taken in 1991.
Typically, that was due to the rise in competition from other manufacturers, specifically, from the Asian economies such as China. A drop from 244 million dollars to 66 million dollars had been registered within the 1991 and the 2002 period. A typical example of the consequences was the number of people laid down due to free trade agreement that over time had allowed free trade to be made freer.
According to statistical evidence, when Pillowtex in 2003 became bankrupt, unemployment of 40% of the laid off workers had become persistent, without finding new employment and those employees who had secured alternative employment were earning salaries far too low compared with the earnings they were getting from the bankrupt Pillowtex. It was between 2004 and 2006 that over 36,000 employees had lost free trade related jobs from the apparel industry (Zimmerman n.d).
One of the consequences is the ripple effect related to free trade in the apparel industry translates to the microeconomic impact specifically targeting household incomes and the demand and supply of goods and services both in the manufacturing sector and the consumers in general (Dewey 1975).
The underlying microeconomic principles relate to the primitives of microeconomic agents in the allocation of scarce resources based on the utility derived from the resources. It affects decisions that influence the market behavior that translates to effects on demand and supply in the market for goods and products (Zimmerman n.d). One of the microeconomic impacts was families losing their homes and others being compelled to relocate based on their income levels or no jobs at all. That also contributed to a number of families falling from the middle class into the lower income classes, while others sank into poverty (Dewey 1975).
Thus, the impact of free trade was felt and making free trade freer could result in much more negative effects on families. In addition to that, the microeconomic effect had watered down to income levels affecting minorities and the whites in the United States to be profound on the income levels of white and blacks. In the foregoing argument on the effects of free trade being made freer, an imbalance in trade mentioned above based on an analysis of the trade imbalance situation is summarized in the following graph (graph 1) below.
According to statistical data illustrated on the graph below, making trade freer shows after effects, which include shifting the trend import and export balance higher and higher over the years, while exports continue to rise but at a low level compared with exports between 1989 and 1994. Onwards from 1994 to 2010, exports reduced significantly while trade also shows a downward trend between the United States (US) and Mexico as one of the case studies (Scott, 2011).
The red line show the net imports with a rising trend, while exports had been declining worth time and trade has significantly taken a dive over the years.
A Job displacement experienced over the years due to making trade freer rather than fairer is tabulated below in table 1.
It is worth arguing that despite the diminishing trade between the US and Mexico with a rise in imports being registered over a similar period, there should be a reciprocating effect on the Mexican economy (Scott, 2011). Typically, a similar trend is observed between the United States and other countries as shown in the table 2 below.
Table 2:Economic Impacts of the KORUS-FTA
The above table illustrates a decline in trade and loss of jobs based on the job displacement argument. However, job displacements gives rise to the argument that the displacements simply benefit other emerging economies, thus justifying the argument that developing countries gain from making trade freer rather than fairer. However, the assumption seems to defaults to the argument that of displacements, as they seem to create employment in emerging economies.
It is worth considering the argument that working conditions in the emerging economies are far below those allowed by the international labor organization and other organizations concerned with working conditions (Scott, 2011). Therefore, the argument that making trade freer makes unfair working practices the underlying force in China and other developing economies that provide competitive advantage over the US and other developed economies is tenable (Scott, 2011).
One of the unfair employment practices is child labor in developing countries. That has particularly been observed in the Chinese labour market. In addition to the unfair labor practices, the Chinese have been accused of unfair trade practices based on making trade freer than being fair. Despite the staggering economic growth experienced in the People’s Republic of China, a lot of evidence abounds about the trade practices and labor practices in China.
According to the report by Perman, Duvillier, David & Grumiau (2004), China and other countries in export processing zones have guised themselves under the protective exemption from enforcement of labor laws to allow manufacturing firms to operate below the international labor laws requirements. That is supported by the rapid shift of manufacturing jobs toward zones of poor labor law enforcement policies under international trade practices.
Thus, in most of these zones, labor legislations are not enforced or are poorly enforced. Thus, the argument that job displacements provide employment opportunities in developing nations is not justified (International Labour Organization, 2008). Typically, the principles of international labor laws are based on eliminating discrimination based on occupation and employment, provision of accurate inventory of ILO resources, and abolition of child labor in every respect.
However, china, which forma one of the case studies under international trade has been accused of several violations of the above ILO laws. In addition to that, further accusations have been projected at the strength of the labor laws by the Chinese government on protecting the fundamental rights of workers in its manufacturing industries.
In addition to that, strong arguments have shown that despite the enactment of laws that seem fair to the employees, at the face of it, yet, these laws have not been enforced to protect the employee against exploitations and unfair working conditions (International Labour Organization, 2008).
Perman, Duvillier, David & Grumiau’s (2004) observations show that work place disputes in the recent past have been on the increase (Zimmerman n.d). According to the report by Zimmerman (n.d), a number of work place safety concerns have been on the rise and work place safety related disputes on the rise. In addition to that, a rising trend in labour unrests have been observed in the recent years.
That is also in agreement with the rising figures of job displacements from other countries, in this case United Sates, the case study that has been used with a corresponding find rise in similar rise of jobs in the China. Observations have also shown weaknesses in trade unions not supervising the work places, and other working conditions in china. Similar cases have been reported in Mexico one of the paces job displacements has trended towards.
Studied show that by when the North American Free Trade Agreement (NAFTA) came into forces, a large number of employees, over 0ne million workers, often working under deplorable conditions were reported to work for less than six dollars a day in Mexico (Perman, Duvillier, David & Grumiau 2004).
Other observations made include gender discrimination in the working places; excessive working hours without appropriate compensation, which have also taken their toll. Other unfair working practices include poor health due to failure by firms in the new areas to enforce labor laws that require a healthy working environment. Thus, it is imperative, based on the arguments presented above to make trade faire rather than freer. Typically, it is by making trade fairer rather than free that the benefits of free trade could be fully realized (Scott, 2011).
Faire trade could ensure that job displacements occur at a sustained rate to allow firms in emerging markets prepare legislation to protect children against employment to work in the firms, improve employment rates while retaining previous employments at a sustained rate. In addition to that, firms could be prepared to implement labor laws and other legislation (Scott, 2011).
Moreover, the microeconomic and macroeconomic impacts discussed above could not translate the destructive effects due to free trade being made freer. Thus, the poor could not be robbed of better living conditions when the trade is made fairer rather than freer. Typically, making free trade fairer is based on the principles of protectionism associated with countries trying to protect their markets from influx of low quality cheaper substitute products from other countries specifically as is evident from China to America.
In addition to that, the protectionism regime draws on the need of preserve local jobs at the expense of jobs displacement that does not service well with the replacement of lost jobs. According to media reports, Ikenson (2010) argues that China’s economy is thriving on the American economy.
Many manufactures in American simply see the argument that their problems are made in China to be true. That has compelled the American government to intervene and impose such measures to overcome implications brought about the loss of jobs due to Chinese manufacturers. Among the measures put in place included the imposition of tariffs ranging from 3.8 % to 31.4 % on Chinese manufactured goods (Scott, 2011).
Thus, “Making trade fairer is more important than making it freer” is imperative based on a three pronged argument based on the need to preserve jobs, introducing fair business and labor practices and providing the poor with their right to exist. On the other hand, it has been demonstrated through case studies that making free trade freer comes with a range of problems with a macroeconomic and microeconomic implications.
Cases studies have provided stark figures that show how job displacements have been done by shifting manufacturing jobs from the US to other emerging economies. These include economies such as China, India, Mexico, among others. Thus, making trade fairer is better to avoid job losses due to job displacements, poor working conditions, and fair working practices.
References
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