"The Rigged Trade Game"
Source: The New York Times, July 20, 2003.
http://select.nytimes.com/search/restricted/article?res=FA0F1FFB3A580C738EDDAE0894DB404482
In September 2003, a large group of developing nations staged a protest by walking out of the World Trade Organization (W.T.O.) meetings in Cancun, Mexico. Delegates from 146 countries had met in Cancun to discuss how trade liberalization could benefit poorer nations. As noted in Chapter 31, the theory of comparative advantage suggests that international trade increases the world's production possibilities frontier. Based on this philosophy, the W.T.O. has encouraged developing countries to open their markets to industrial goods from abroad. The United States has been a big supporter of free trade. As the text points out, the past four presidents (George W. Bush, Bill Clinton, George Bush, and Ronald Reagan) were all advocates of free trade. Yet, many of the post-industrial economies—including the European Union, Japan, and even the United States—have been reluctant to apply this lesson to agricultural products (see box entitled "Farm Subsidies and the Poorer Nations" on page 771).
This editorial piece is from a New York Times series entitled "Harvesting Poverty" (see www.nytimes.com/harvestingpoverty for the whole series). Focusing on the example of the Philippines, the article shows the impact of unfair trade practices on poor farmers overseas.
The article informs us that the U.S., Europe, and Japan spend almost one billion dollars each day subsidizing their farmers. Recall that chapter 3 addressed the impact of agricultural subsidies and tariffs on market mechanisms. Subsidies act as a price floor, creating a surplus of agricultural goods on the world market. Tariffs placed on agricultural imports prevent farmers from other countries from selling their goods to us at low prices. While prices are kept artificially high at home, our excess farm products are dumped overseas at cheap prices; local farmers abroad cannot compete.
Questions for Discussion:- The International Monetary Fund, according to the Times editorial, estimates that repealing trade barriers and subsidies would improve global welfare by approximately $120 billion. Demonstrate this logic, using a Production Possibilities Curve. Label the axes as agricultural and manufacturing goods.
- According to the editorial, the hypocrisy of advocating free trade only for those industries in which we have a comparative advantage harms the United States' credibility in the war against terrorism. Explain this argument and the evidence they provide.
- The aggregate benefits of free trade do not mean that everyone benefits. This is why the farm lobbies oppose trade liberalization. Looking back at the graph for a price ceiling (on page 56 of the text), explain what would happen to the price and production of food, cotton, and other agricultural products in the United States if the protectionist policies were lifted. Based on this analysis, who in the U.S. would get hurt by free trade? Who in the U.S. would benefit?
- To follow up on this issue, read the next Economics in Action article called "Ending Tariffs Is Only the Start."
"Ending Tariffs Is Only the Start"
by Keith Bradsher
Source: The New York Times, February 28, 2006.
http://select.nytimes.com/search/restricted/article?res=FB0C1EF83D550C7B8EDDAB0894DE404482
Since a walkout from the World Trade Organization (W.T.O.) meetings by representatives of developing nations in 2003, there have been efforts to reduce trade barriers that limited exports from poor to rich countries. As the title of this article indicates, however, "ending tariffs is only the start." The author Keith Bradsher focuses on the example of garment factories in Laos. Even with reduced tariffs, competing with the economic super-power of China, is difficult. The article draws attention to two important factors affecting an economy's competitiveness in international trade: (1) the relative productivity of its workforce and (2) the amount of government-financed infrastructure, like highways and other transportation systems.
Questions for Discussion- Why do the Laotian factories find it difficult to compete with Chinese manufacturers? What strategies do they use to avoid direct competition?
- Some groups in the U.S. are critical of W.T.O. agreements to remove tariffs and quotas. What are their concerns with the way trade barriers are being phased out?
- What is Social Accountability International? Is meeting their labor standards responsible for higher costs in Venture International's factories, according to the article?;
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