A central theme in Barack Obama's campaign platform--and
potentially in the President-elect's trade agenda--is the belief
that free trade policies have been unfair to U.S. workers and
The essence of the argument is that because foreign workers are
willing to work for lower wages than their U.S. counterparts, and
because the underdeveloped societies in which they live do not have
the same levels of environmental protection or labor standards that
U.S. citizens enjoy, foreigners should not be allowed to freely
compete in U.S. markets. They can sell their products here but only
if the U.S. government raises the price of the imports to the level
that U.S firms want to charge. In other words, they can sell, but
they cannot compete on price.
It is true that U.S. trade commitments to lower tariffs and
other trade barriers have exposed some of America's producers to
foreign competition, and in some cases even driving them out of the
marketplace. In many more cases, however, U.S. firms have responded
by improving their products and their production processes. The
benefits for U.S. citizens have been two-fold. In their capacity as
workers, they have commanded increased wages on the basis of their
increased efficiency and productivity. In their capacity as
consumers, they have benefited from the availability of better
products at cheaper prices.
Rebutting the "Fair" Trade
The special interest groups, lobbyists, and other proponents of
so-called "fair trade" want to stop this process of improvement,
demanding instead costly protectionist policies to prop up
uncompetitive firms. Historically, the U.S. government raised
prices of imports through the imposition of tariffs. Sometimes
quotas were used to limit supply and drive up the price of imports
These days, advocates of "fair trade" seek to drive up the price
of imports by requiring foreign governments to raise their cost of
production through their own regulatory process. They do this by
threatening tariffs or quotas unless foreign governments adopt more
restrictive--and costly--labor, environmental, and other standards.
Rather than encouraging American firms to improve, the champions of
"fair trade" would bolster America's competitiveness by making
foreign producers less so.
Unfortunately, this tactic will only make it harder for the U.S.
to open markets around the world for U.S. exports and prevent
America from enjoying the lower prices and better use of resources
that stem from reducing trade barriers. It is true that there can
be unfair foreign competition that can harm domestic business;
however, there are mechanisms in place in U.S. free trade
agreements (FTAs) and within the World Trade Organization designed
to address these problems. Trade liberalization has opened markets
around the world to U.S. goods and services, created higher-paying
jobs for Americans, and attracted the investment needed for
long-term economic growth. America cannot afford to abandon open
Internationally uncompetitive corporate tax rates, rigidities in
the labor market, corruption, and other policy failures often add
to the cost of freer trade--costs that erecting barriers to trade
will not reduce. Making U.S. trade policy tougher and trade
agreements harder to negotiate will not boost America's ability to
compete in the global market. Instead, policymakers should continue
to liberalize trade with the open market policies that have been an
instrumental part of America's economic success and dominance in
"Fair" Trade Is Unfair
Adding more restrictive labor, environmental, and other
standards to the structure of America's trade agreements could
eliminate the benefits that partner countries receive from free
trade agreements with America. This would especially affect
developing countries that use U.S. FTAs to advance domestic
economic reforms and to lessen poverty. Demanding that developing
countries implement and enforce U.S.-style regulations when many
are struggling to create the very institutions needed to facilitate
a healthy economy will not be successful--especially if these
countries are denied access to the world's most important market
and the economic growth that comes from that trade.
Keeping America's trade partners mired in poverty will do little
to advance sound standards around the world and little to boost the
U.S. and global economies. Historically, as a nation's prosperity
increases, the desire--and more importantly, the ability--to adopt
labor and environmental protections become stronger, resulting in
policies that accommodate the individual needs of the country.
Engaging in freer trade can better promote the evolution of good
regulations by empowering countries with the economic opportunity
to develop and raise living standards.
Moreover, making more stringent standards a part of trade
agreements will not make freer trade "fairer" for America. Any
negative consequences of freer trade--usually thought of as lost
jobs or market share--are generally the result of inappropriate
policies, not trade liberalization. Even in a country with
relatively low tariffs and few investment restrictions, the
interplay of tax, regulatory, labor, and other economic policies
with relatively free flows of goods and capital can lessen or even
negate the benefits of an open market.
The major economic benefits of free trade derive from the
differences among trading partners, which allow any country
embracing world markets a chance to become competitive. Free trade
is fair when countries with different advantages are allowed to
trade and capitalize on those differences.
Low wage costs, access to cheap capital, a highly skilled
workforce, and other fundamental variables all play a role in
determining what comparative advantage one country has over another
in the global marketplace. Equalizing those differences in the name
of "fairness" only negates or reduces a country's ability to
benefit from participating in the global trade system.
Free trade allows a country to compete in the global market
according to its fundamental economic strengths and to reap the
productivity and efficiency gains that promote long-run wealth and
prosperity. Indeed, there is no distinction between free trade and
truly fair trade, and U.S. free trade policy should continue to
support that ideal.
A Chance to Succeed
Embracing and taking advantage of globalization relies not just
on free trade policies but on redressing the factors that lead to
less competitive firms and workers in the first place. High U.S.
corporate tax rates, complex and inefficient jobs and retraining
programs, costly regulations, weak protection of property rights
around the world, and other policy failures are the real threats to
American competitiveness--issues that erecting trade barriers
though "fair" trade policies will not resolve. Free trade is one of
the greatest economic engines of change, inspiring innovation and
bolstering growth. By keeping America open to trade, the new
Administration can ensure that U.S. workers, consumers, and
companies really get a fair shot to earn and keep their place at
the top of the global marketplace.
Daniella Markheim is
Jay Van Andel Senior Trade Policy Analyst in the Center for
International Trade and Economics at The Heritage Foundation.