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Saturday, April 9, 2016

The Progressive Case against Bernie’s “Fair Trade”

Sanders' Policy Would Devastate the World's Poorest Billions

In a new and revealing interview, Democratic presidential candidate Bernie Sanders denounced US trade policies, arguing that it’s too easy for Americans to trade with developing countries that have low wages and poor working conditions. According to Sanders, “I’m not going to have American workers ‘competing’ against [developing countries] under those conditions.”

Sanders says he does not oppose international trade, but he wants “fair trade,” instead of free trade. “Unfettered free trade has been a disaster for the American people,” he remarked in an interview with Vox last year.

So what constitutes fair trade, according to Sanders? He believes that fair trade would involve having our trade agreements renegotiated to include only countries that have “roughly equivalent … wages and environmental standards [as] the United States.”

This idea should shock the conscience of anyone who sincerely cares about the wellbeing of the global poor. Such a standard would severely restrict trade with poor countries and would shut off the economic opportunities afforded by the US market.

Consider: average Americans, who don’t see themselves as wealthy, are actually among the world’s most affluent individuals. According to Pew, 88 percent of Americans are in the global upper-middle class, and 56 percent are in the highest income class.

In contrast, only 16 percent of the global population reside in the upper two income groups, while 71 percent fall into the “low-income” and “poor” income groups — living on less than $2 and $10 a day, respectively.

There are less than a billion non-Americans who fall into the upper and upper-middle classes. Sanders believes that we should essentially stop trading with the vast majority of the world’s population, for the crime of not being as wealthy as we are.

His views on trade betray his egalitarian principles. As noted by Swedish author Johan Norberg,

When unions, when protectionists, when uncompetitive corporations in the U.S. say that we shouldn’t buy from countries like Vietnam because of its labor standards, they’ve got it all wrong. They’re saying: “Look, you are too poor to trade with us. And that means that we won’t trade with you. We won’t buy your goods until you’re as rich as we are.”

That’s totally backwards. These countries won’t get rich without being able to export goods.

Nor will poor countries be able to benefit from the advances in working and environmental conditions that accompany economic development and technological change. Cutting off or restricting trade with poor countries is exactly the wrong way to go about making the world a better place, especially if you care about the incomes and working conditions of poor people.

Research shows that lowering barriers to trade through free trade agreements with poor countries relieves poverty in those countries by expanding the volume of their exports. For example, economist Brian McCaig found that cutting US tariffs on imports from Vietnam caused economic growth in Vietnam that considerably reduced the share of Vietnamese living in poverty.

Similarly, research by John Romalis of the University of Chicago found that tariffs and trade barriers “in developed and developing countries still greatly restricts developing country trade, which may substantially harm growth in poor countries.” He estimates that eliminating all tariffs on imports from developing countries would increase per capita income growth rates by 0.6 to 1.6 percent, per year, in poor countries. This would be a considerable and compounding acceleration of economic development.

Sanders laments when domestic manufacturers move their operations overseas to low-income countries, but he fails to note how this dramatically improves the wellbeing of the poor in those countries. In a recent study, economists Hyejoon Im and John McLaren find that foreign investment in poor countries reduces poverty and income inequality, because, among other things, multinational corporations “compete with domestic capital for domestic workers, pushing down the income of domestic capitalists and raising the incomes of domestic workers.”

What does Sanders think would happen if companies moved all their production out of low-income countries back to the United States? What does he think would happen if America stopped or restricted imports from poor countries? The answer is painfully obvious. Trade expert Daniel Drezner explains, “If Sanders were to impose significant trade barriers with [low-income countries like] China, the marginal middle class, or the ones who had just gotten out of poverty, would likely wind up falling back into poverty.”

This is the reality that Sanders is happy to ignore: even if you accept the clearly false idea that most Americans have been harmed by trade with poor countries, his “fair trade” policy would not only devastate billions of the world’s poor, it would do so for the comfort and convenience of a few comparatively well-off Americans.

Sincere egalitarians — and, indeed, all who genuinely care about the world’s poor — must reject Sanders’ “fair trade” policy, which is nothing more than nationalism and redistribution from the global poor to the global rich. Instead, they should embrace free trade, which is, as recognized by the progressive site Vox, “one of the best tools we have for fighting extreme poverty.”

  • Corey Iacono is a Master of Business graduate student at the University of Rhode Island with a bachelor's degree in Pharmaceutical Science and a minor in Economics.