Economists and politicians alike debate the relative merits

Economists
and politicians alike debate the relative merits of free trade and fair trade.
Although both concepts refer to a comprehensive approach to commercial
activity, people who favor one approach over the other are often guided by
ideological concerns that affect the political regulation of trade activity.
Free trade and fair trade address the same subject but from very different
perspectives.

Free Trade

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Proponents of free trade
emphasize the reduction in barriers between countries and the elimination of
preferential policies that favor countries or specific industries. Free traders
believe that a business should succeed or fail based on its ability to respond
to the free and open market, without needing special governmental protections
to protect the industry or its workers. Many free trade advocates advocate for
the elimination of tariffs and subsidies, and oppose regulations that force
companies to pay extra for doing business in foreign markets.

Fair Trade

Fair trade advocates focus on the
wages and working conditions of labor in developing markets. For example, a
fair trade activist will fight to increase the wage rates of workers and
improve their working conditions, especially when a large multinational corporation
chooses to pay pennies per hour for labor in one country instead of dozens of
dollars per hour elsewhere. Fair traders suggest that companies and governments
should regulate trade to ensure that workers receive a just level of
compensation and a safe working environment. “Fair trade” as a term
is sometimes used to refer specifically to policies that provide a living wage
to farmers for their crops, usually above market prices, because local and
small-hold farmers often cannot compete on price with large-scale factory
farms.

Ideology

Free trade advocates are usually conservative or libertarian; their
support for smaller government and less regulation, in general, leads them to
be skeptical of government programs to redistribute wealth or income. Fair trade
advocates, by contrast, tend toward a communitarian outlook that favors
equality of outcome, and they are more willing to embrace government action to
improve people’s quality of life. These differences in political outlook often
make trade policy a matter of considerable debate within national legislatures.

“Free”
Trade Agreements. A real free trade agreement would say “There are no
restrictions on trade between these countries,” but most agreements are
thousands of pages. Why? After legitimate reasons (dispute settlement,
standards, etc.), most of the text restricts trade to protect local producers
from outside competition. (The same local producers lobby for exports abroad.)
The EU’s “bra war” was between retailers and consumers seeking cheaper
Chinese textiles and producers seeking higher profits. Chinese producers had no
power. Free trade benefits consumers, who get better, cheaper goods. It
benefits efficient producers with larger sales. Inefficient producers are hurt;
they go out of business and fire their workers. This is not bad from a social
perspective if that industry is “valuesubtracting” by diverting
resources from better uses. Typical examples ofbusinesses that subtract value
are “national champions” such as steel producers, airlines, car makers
and agricultural commodity producers. European and American sugar producers
protected by quotas (quantity limits) and tariffs (import taxes) sell their
sugar for three times the world price. Europe even exports subsidized sugar,
hurting competitive producers a second time. This situation persists because
sugar producers, who get large benefits, lobby for protection; the costs are
small for each consumer, so it is not worth their effort to oppose protection.
Sugar protection is particularly atrocious because it prevents developing world
producers from rising out of poverty.

 

                                                                                                                

Free
trade can be fair, but agreements that open some markets to powerful producers
where they can use their market power, while keeping others closed and
uncompetitive, are neither free nor fair. The little guy (the consumer, the
small producer, the poor farmer, the developing country) gets hurt. When nobody
has special treatment and the field is truly level, then free and fair will
mean the same thing. Competition may be tough on the level playing field, but
political power and legal leverage tilt it further. Free trade is fair trade
when it is truly free. Beware of cheap imitations.

 

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