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Thoughts On Trade – Part 2

Please be sure to read Part 1 before continuing.

To trade or not to trade; globally that is. [cont.]

This is not an argument against globalization, but an attempt to open eyes and say “Hey, are you cool with this being the future.” Even though the future is largely uncertain you can estimate conceivable outcomes based on current actions and states of nature. This is what the point is here. So onward we go.

Firm A can’t pay $1 a day here but can move 6000 miles and whoa $1 a day is in fact possible. All the additional costs associated with moving production to another country far far away are recouped with the $1 per day labor. An executive may say “this is cool because now these same products sold domestically will be a degree cheaper and our bottom line will be a degree fatter.”

A question here arises: why would a domestic government be so cool with this situation when in fact that same government has policies in place against another country far far away from producing far far away and dumping domestically? In fact the country far far away winds up moving production into the domestic country, production ‘which doesn’t count for quotas’, so they can sell their products freely without government grief [a great example are Japanese car manufacturers who moved production into the United States in the 1980’s due to the Reagan administrations imposing of Japanese automobile import quotas, or more commonly called “voluntary restraint agreements”]. In that same breath that same government however, will allow one of their domestic firms to move production far far away and then dump this production domestically.

Domestic government A says if you do business here you must abide by these labor laws, these environmental laws and these tax laws. Or you can move your production to another country where you don’t need to meet any of our laws or restrictions and then you can just export your production back home. Destroy jobs and tax revenue, it’s okay, because if you aren’t braking the law on our soil we don’t give a flying f, just please go across the boarder and ship all your ‘domestic law breaking’ product back home, cause we as consumers will love to buy it and wont feel guilty that we are hurting our domestic country, or your country; because hey it’s being produced in a country far far away, oh and did I mention it’s so cheap?

Yes, that’s quite a critical assessment of free trade. However, it is probably also an inaccurate assessment and in contradiction, ideal globalization interwoven with free trade does and can yield magnificent results. A compilation of nations, which allow the free flow of capital goods and ideas, should and does improve life throughout the world, while modest in some places and grand in others. The current situation is not crystal clear and won’t be for years to come. An important question to ask is: are there really good jobs, aside from low wage service jobs, available for domestic workers that loose a well paying job due to globalization? Are we really lifting people out of poverty in developing trading nations, when they make $1 per day and of which many work in conditions that would be deemed illegal domestically? I hope the answers to both of these questions are yes. In terms of both, time will be the judge, and when we have a definitive answer it will most likely be too late to do anything about it.

Thoughts On Trade – Part 1

It should be dully noted here, I am not a qualified practitioner of economics. My thoughts below represent my outward thinking on the situation of Trade, thoughts that have been nurtured by countless books and articles. This is the first part to a multipart essay. It would be most beneficial if you would share your own thoughts, ideas, and or criticisms on the subject.

To trade or not to trade; globally that is.

Defiantly a large topic of discussion today, maybe even a large topic of discussion over past centuries. However, do we really have a definitive answer? Maybe the correct answers lies in the terms of exactly what one perceives as the desirable outcome. There is no doubting the benefits of international trade. Or better yet, free trade in and of itself has many data points which show us increases in standards of living and the enrichment of countries; some may argue it’s for the betterment of their citizenry others the exploitation. But how does one truly gage the advantage of trade between industrialized nations and nations developing. Between nations with strict labor and environmental laws versus ones with of no such kind of laws? I can definitely count the extra dollars in my pocket by buying products at reduced prices; reduced prices attributed to their production being in a country with more competitive labor in that specific product. This is just a single variable [labor] in the free-trade’s comparative advantage model which states, in short: free trade allows countries to pool their resources into the industries in which they are most competitive, thus in effect creating a sort of optimum efficiency between trading nations. Comparative advantages lay in the specific levels of productivity one possesses when producing certain goods and services. Productivity being the amount of output you receive per unit of input.

However the main concern with productivity is this: Offshoring and outsourcing, several firms [multinationals] state, is necessary because domestic labor is not productive enough. And by ‘not productive enough’ they mean they can’t pay $1 a day to domestic laborers to labor away.