The freedom of free markets

Most human settlements are not self-sufficient. They produce some of the products that they use and need, but other raw materials and finished items must be brought from other places. Archaeological research into the earliest civilizations in Iraq, Egypt, and India reveal that materials and items were exchanged among those cultures. Trade has been part of human history for thousands of years.

Trade gives governments opportunities to raise money. Governments tax products that move, charging tolls for using roads and bridges and ports. Governments tax products when they are bought and sold. Governments place special taxes, called tariffs, upon products that come from other places. Tariffs accomplish more than offering income to governments. Tariffs sometimes discourage consumers from buying foreign products, encouraging them to buy the same products from local providers. Tariffs discourage the purchase of foreign products, even when local providers have no local substitute for the products in demand. Tariffs—and the threat of tariffs—can be used in negotiations between governments, even when the substance of those negotiations goes beyond trade and other economic considerations.

In the twentieth and twenty-first century, the United States government has inserted itself into trade arrangements and economic factors in several ways. Tariffs have been established on foreign goods to try to protect American jobs. Bans on export of certain items and technologies have been enforced to keep our Cold War enemies from gaining products that might help them defeat our nation. Assets of some nations and their citizens have been frozen and tourism to some countries has been curtailed to limit their economic success in efforts to change their governments’ policies. At the same time, trade agreements have made it easier for American products to be sold in other countries while products from those countries also were made available to customers in the United States.

Free trade benefits consumers, giving them more choices in the marketplace. Free trade benefits workers, giving more consumers access to their products. In the same way, free trade benefits corporations and the many investors who hold stock in those corporations. Free trade reduces strife between governments—until 2008 (when Russia invaded Georgia), there had never been a war or military confrontation between two nations that both had McDonald’s restaurants. To preserve free trade with its economic benefits, governments often will go to great efforts to resolve differences through diplomacy rather than through violence or threats of violence.

Yet free trade can cause problems for some participants. Sale of crops from one country in other countries can lower prices paid to farmers in those other countries. Underpaid factory workers in one country can produce products that are sold in other countries, reducing purchase of similar products in those other countries and possibly driving workers into unemployment. Aware of these risks, governments frequently work to create trade agreements that will benefit their own farmers and factory workers and also benefit their own consumers, seeking a balance between the competing needs of two groups which often overlap—auto workers who assemble cars, but who also want to buy the best car at the best price, no matter where it was made.

The chief concern is competition. But other factors deserve consideration. Laws in the United States provide workers with safe working environments and adequate wages while also prohibiting pollution of the air, land, and water. Countries lacking all those laws (or more permissive in their laws) can compete with the United States, producing products at a lower cost. Not only does this put American workers at risk of losing their jobs, but it also harms workers and residents in these other countries.

One new tariff might help to maintain the balance of keeping American workers at their jobs, providing affordable products to American consumers, and also helping the rest of the world’s consumers, workers, and residents. This tariff would require products—both agricultural and industrial—to pass an inspection established by the United States Congress. That inspection would ensure that work environments are safe, that workers are receiving an adequate wage, and that companies are not polluting the environment. A logo would be placed on the packaging of items that pass inspection; a tariff would be assessed on items that are not inspected or did not pass inspection. A higher, punitive, tariff would be assessed on any producer that used the logo without having passed inspection. Some American consumers would buy only products that have the “safe workplace” logo. Others might still seek the better bargain, but the tariff would bring the imported item more in line with American-made items in the competitive marketplace.

Free trade contributes to other freedoms. Governments still bear some responsibility to regulate trade for the good of consumers and also for the good of workers. A balance is not easy to achieve, but such a balance is desirable, and most of the world’s governments share an interest in finding that balance. J.

On tariffs–and a proposal

I wrote yesterday about globalization to provide a context for today’s post about tariffs. A tariff is a tax assessed by a government upon imports. Governments assess taxes to gain money, of course, but the purpose of a tariff is often more than income. Tariffs add to the cost of imported items, making it easier for similar items made in the country to compete for buyers.

In theory, if the United States government wants to help wine makers in the United States, the government can place a tariff on French wine, making French wine more expensive than California wine. Some buyers will still prefer the French wine, even if it costs more than the California wine. Others will switch to California wine to save money.

In theory, if the United States government wants to help car makers in the United States, the government can place a tariff on Japanese cars and German cars, making them more expensive than American cars. Some buyers will still prefer the Japanese cars or the German cars, even if they cost more than the American cars. Others will switch to American cars to save money.

As I indicated yesterday, because of globalization it is difficult to measure how American a car is. Manufacturers have headquarters in several cities around the world, and their major shareholders come from various countries. Factories for parts and factories for assembly are also scattered around the world. Writing a tariff law that helps preserve American jobs in the automotive industry is far more difficult than it sounds.

In addition, when one country starts increasing tariffs, other countries often follow suit. Given the above examples, France and Germany and Japan very likely would place tariffs on American products, which would cancel the benefits the United States hoped to gain by its new tariffs.

Meanwhile, I also made the point that building factories in other countries seems to cost America jobs, but that is not necessarily so. At the same time that the company that built the factory is trying to lower its costs and save its customers money, it is also paying workers in that other country, people who might use some of their income to buy products made in the United States.

Why is it less expensive to pay workers in other countries than in the United States? The United States has stricter laws about minimum wages and benefits than most other countries. The United States has stricter laws about safety in the workplace than most other countries. The United States has stricter laws against pollution than most other countries. We cannot force other countries to adopt laws like ours, and we would not want to lower our standards so far that pollution increases, that workplaces are unsafe, or that workers cannot survive on the wages they are paid. Some compromises undoubtedly can be made in these areas—some regulations probably are excessive. But removing all such regulations would be bad for workers in the United States.

Americans generally want to save money. They are happy with stores that keep their prices low. Yet most Americans do not wish other people to suffer for our prosperity. When we hear of sweatshops where workers are abused, underpaid for their work, and forced to endure unsafe conditions at work, we would prefer not to finance those sweatshops by purchasing their products. Yet how can we know which of the things we buy were assembled by suffering workers? And how can we be sure that our boycott of such products will improve working conditions in these other countries? If the factories close, how will their workers find income to stay alive?

This leads me to a proposal. I suggest that the United States Department of Commerce (DoC) create a team of investigators to inspect factories in other countries, particularly factories owned and operated by corporations based, at least in part, in the United States. These investigators could not force their way into factories; they would need to be invited by the owners of the factories. But those factories that passed inspection would be allowed to carry a seal of approval on their products. The inspection would ensure that workers at the factory receive enough money for the workers to live in their communities (which would probably still be far less than minimum wages in the United States). The inspection would ensure that working conditions at the factory are safe. The inspection would ensure that the factory is not polluting the air, the water, or any other part of their environment—not necessarily according to the measures of American law, but still within the capabilities of the company that owns the factory.

Congress then could place tariffs on products that do not carry that seal of approval from the DoC. The lack of a seal of approval would be the result of failing to pass inspection or the result of failing to permit inspection. Using the seal without having passed inspection would result in higher penalties, whether higher tariffs or higher taxes on the United States property owned by the corporation to blame.

Of course the salaries, the benefits, the office space, and the travel expenses of this new branch of the DoC would need to be added to the national budget. I expect some of those expenses would be offset by the new tariff. At the same time, this tariff would benefit two groups of workers. It would benefit American workers, who would have reduced competition from overseas factories that underpay and mistreat their workers. It would also benefit the workers in other countries because corporations would be more motivated to improve their salary scales and the safety of their factories. My suggestion would be good for America and good for the world. J.