Friday, April 08, 2005

Free Trade

Via Kevin Drum, Bradford Plumer argues that CAFTA sucks, and says
the solution is to just give Guatemalans the right to unionize, and speak out in the workplace, and let them choose for themselves. CAFTA wouldn't allow that—indeed, it allows employers to "harass, intimidate, fire and blacklist workers who try to organize unions." Ergo, it's no good, and ought to be renegotiated.

I pretty much agree with Plumer, though I'm not sure I agree with the sentiment of the title "I Heart Hawley-Smoot." I'm not an economist, so I'm willing to believe economists who say tariffs are bad. I also believe Plumer when he says that most of the arguments over trade are bogus (that's a paraphrase, read it yourself).

In the standard arguments over trade, there are two, allegedly competing, theses. The free trade purists say that barriers make markets less efficient, so capital, jobs, material and product should be able to flow freely (again, a caricature). The fair traders (who are often caricatured as protectionists) are concerned about the loss of jobs, and undermining labor, environmental, and human rights standards. The free traders argue it is exactly those standards (environmental protections, OSHA, minimum wage) that make things too expensive here, and make American companies less efficient.

Those additional costs that the US and EU have are called externalities. As the name suggests, they are external costs of a product, costs which society pays, but which aren't integrated into prices. By regulating a minimum wage, imposing Social Security and Medicare taxes, OSHA standards, emissions standards, etc., developed nations integrate those costs into prices. Developing nations have lower standards, but the costs of low wages, poor safety, impoverished and sick elderly people and pollution are borne by society. Those costs are either borne by the developing nation, or are passed on to the importing country through wage cuts and unemployment.

Here's my solution. Maybe it's crazy, but here goes. Allow a country to levy a tariff which bridges the gap between regulation in each country. The WTO would have to agree to some changes, but would also be the place to arbitrate claims. The importer could be obligated to spend some portion of the tariff in foreign aid targeted at the cost differences. As the developing country develops, the tariff decreases.

Note that products will still be cheaper to make in Indonesia. A living wage would still be dirt cheap, but workers would earn a living wage. At the very least, the product would cost the same amount here (and offer the same profit) as if the workers earned a living wage.

I'm not a professional, and this may be dirt stupid, but I'd love to know what people think of it.