Following last week’s article on the raising of tariffs on steel and aluminium by President Trump, it is interesting to look a bit deeper into the issues of free trade and protectionism. I came across an article on www. http://smallbusiness.chron.com by Tom Chmielewski, who sheds some light on these issues.
“With market globalization, industrialized and developing nations have embraced free trade as a means for opening markets and reducing consumer prices. Yet it has been reviled by human rights organizations that blame free trade for a critical degrading of workers’ rights and its harmful effects on the environment. The benefits of free trade can hide its unintended impacts. But measures to safeguard against its ills raise the fear of protectionism.
Protectionism is the practice of nations to protect domestic industries and their workers by providing subsidies for their production and imposing tariffs on competing foreign products. Yet protectionism has been blamed for closing off trade from foreign countries, raising prices and giving domestic consumers less choice. A country that practices protectionism can just as easily be subjected to it by other countries imposing their own import tariffs and awarding subsidies to their industries.
Free trade is based on agreements between nations to drop import barriers, allowing foreign goods and services to compete on a level playing field with domestic products. This opens markets for developing countries and in theory improves their economic conditions. Developing companies in turn are more capable of buying products from industrialized countries. Jobs lost in one industry of a developed country can grow in another industry. Free trade is meant to improve the economy of all participating nations. The World Trade Organization (WTO) regulates free trade agreements among member nations.
Although the WTO allows a country to bar certain imports if they pose a threat to the health of its own citizens or environment, the organization does not allow a country to bar imports because of a manufacturer’s poor working conditions. The WTO also doesn’t consider the impact on the environment due to lax regulations and enforcement on manufacturing processes in exporting countries. Critics argue this causes developing countries to “race to the bottom” by allowing cheap labor, and at times child and slave labor, working under “sweat shop” conditions to keep costs down and compete favorably with countries where labor regulations are enforced. Environmental protection can also be sacrificed in poorer countries looking to expand their exports.
The WTO admits the issues of workers’ rights, including elimination of workplace abuse such as forced labor and types of child labor, have become the subject of intense debate in the organization. European and North American countries hope to provide incentives to improve conditions for workers globally while the organization looks to improve trade. But developing countries and, according to the WTO, “many developed nations” resist the idea of the organization becoming involved with local labor conditions. Officials from developing countries call the argument to include provisions on working conditions in trade agreements a “smokescreen” to eliminate the cost advantage of countries where low wages and poor working conditions are common. The only way these conditions improve, these officials insist, is through economic growth.
An article on “Criticisms of Current Forms of Free Trade” published on the Global Issues website points out that free trade encourages the relocation of multinational manufacturing sites from developed countries to poorer nations with much lower costs. The article argues that wealth in a poor country could be created more rapidly if the economy was based locally rather than on a system heavily dependent on exports, with investments and profits of exporting companies in the hands of foreign owners that limit the economic benefits to their workers and the host country.”
I guess these few notes provide some food for thought for all of us trying to engage in contemporary global trade, whether importing or exporting, whether producing or trading, whether doing business or developing policies, rules and regulations. There are always two sides of the coin to consider.