Free Trade is Fair Trade

Wait, whaaaaaaaaaaaaaaaat? Yes. Free Trade is Fair Trade.

For the purposes of this post — let’s ignore what you believe to be “free” and “fair” trade.

The true definition of Free Trade, basically is this:

a system of trade policy that allows individual economic actors to transact without interference from government.

According to Wikipedia, the definition of Fair Trade is this:

“an organized social movement and market-based approach that aims to help producers in developing countries obtain better trading conditions and promote sustainability. The movement advocates the payment of a higher price to producers as well as social and environmental standards. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, chocolate, flowers and gold.”

Is our current trade situation, in the world “free” or “fair?” It is neither.

Our American government puts tariffs on steel, tires, and other products made here in an effort to “protect” local jobs. As we’ve seen in Cleveland and throughout the rust belt — these efforts virtually always fail. Is this “free” trade? No. It is the government interfering. Is this “fair trade?” No. It hurts producers in developing countries to help our producers. Tariffs aren’t consistent with “free trade” or “fair trade.”

Similarly, our government provides massive subsidies for farmers to “help them.” This, too, is the government interfering, and it hurts farmers in developing countries to help our farmers. It isn’t free trade, it isn’t fair trade.

Comparative advantage is the economic “law” that provides trading partners mutual gains from trade of goods and services. Given economies of scale for U.S. industries, and our comparative advantage in labor output, why do we need tariffs or subsidies? I’ll avoid talk of union demands, government regulations and red tape, and federal/state/local taxes. That only clouds the issue.

My point is this. Our policies aren’t free trade enough. Big into “Fair Trade”? Great for you. I don’t buy it — choosing to pay above market, sometimes fixed-rate prices for a product isn’t for me. But if you do buy into it (and you really are “buying”), that’s your business. But if you think you’re promoting “fair trade” right now — you are not.

The best way to help developing nations, aside from your charitable decision to consciously overpay for goods, is to support truly free trade. Eliminating government interference benefits everyone, especially producers in developing nations. Only when truly free trade is achieved, will you be able to choose from whom and where your goods are produced, free of government influence that distorts the availability and price of the products you wish to buy. “Fair trade” advocates should love this idea.

If we could grow coffee in the United States (we can’t really) — you can bet your tax dollar that those industries, too, would seek subsidies and tariffs to “protect” domestic production. But that’s already the case in many other industries, and it is wrong. Supporters of “fair trade” should do themselves a favor and push for completely free trade. Only then can they practice truly “fair” trade.

But that isn’t going to happen. “Fair trade” advocates typically want the government to intervene to satisfy and enforce their definition of “fair.” This is unfortunate, and  it is disingenuous that many are actually purporting to promote “fair trade” when they truly seek “unfair trade.”

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  1. Liked: Free Trade is Fair Trade (from JimSwift.net) http://ping.fm/1oash

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