Limits to free trade: moral outcomes

environmental-problems-pollution-42__880Tariffs have almost universally been declared a bad idea.  My point is that while it may be true that tariffs do not normally produce positive economic outcomes, tariffs may be necessary to achieve positive moral outcomes.

Almost every regulation we place on business hopefully achieves a positive moral impact, but does come at an economic cost to business.   Consider that the effect of every regulation is to place the business at an economic disadvantage compared to competitors in a country without that same regulation. No child labour, no pollution, or simply ‘use of this chemical is banned’? A tax system that funds a scheme to help those with disabilities, universal health care or education?  Safety regulations such a fire prevention,

All such regulations create an economic penalty for those bound by the rules when competing against competitors without the same restrictions.  Should our society give assistance to the disabled, even if this requires taxes that place businesses at a disadvantage compared to businesses in countries with no assistance for the disabled?  There are times when one country has a natural cost advantage over another for a particular industry, but in this age of globalisation, can free trade simply move all the jobs to locations with the least regulation and moral aspirations?  Is life really all about economics. Can free trade allow a double standard of committing to moral goals but eliminating the cost of those moral by consuming products produced elsewhere and avoiding the cost of those moral goals.In cases where jobs do simply move to locations without the restrictions or regulations we choose,  then the moral goal of the original regulation is defeated.   If you believe ‘no production worker should be exposed to this chemical in order to produce XXX’, then a national regulation will ensure no workers in the country where the law is enacted are exposed.  But if ‘XXX’ production moves offshore, the same number of workers may be exposed, and jobs have simply been moved offshore.

The ultimate effect of globalisation is to move all economic activity to least regulated jurisdictions.

Even with no trade restrictions, access to markets, transport costs and some other factors still can favour goods produced within national boundaries. There are ‘natural advantages’ for production in one country over another.  But there is a trend towards a more uniform globe and the as all else becomes equal and the globe ‘shrinks’, eventually the lower cost is the location with the least social and moral goals.  A free market would eventually result in every industry moving to the location with the lowest costs, and all else being equal, that means the location with the least morally motivated regulations.  Ultimately, even putting in place new regulations requiring fire safety for employees could force relocation of businesses offshore.  Without some trade restrictions or tariffs,  regulations designed to protect workers and the environment could become nothing but means to move the problems offshore, and the jobs offshore with the problems.

We may feel great that we can intrude a new safety standard with no cost impact on what we buy as production will simply more offshore, but in the long term there is a price to pay as industries are lost.

A classic case is climate change.  Moving to sustainable production can raise costs.  How do we ensure the result is not simply to move high CO2 industries to other countries?

The Touted ‘Level Playing Field’.

It is often stated that to have a ‘level playing field’ with respected to competitiveness, it is necessary to have the same access to markets with the same tariffs.  However, to understand the cost of our moral, social, ethical and safety standards is to understand that a ‘level playing field’ only applies when competing with jurisdictions matching those same moral, social, ethical and safety standards.

Compromising Our Society.

Free trade can place limits on the aspirations of our own society. “We must lower taxes to keep our corporations competitive, so we cannot afford universal health care or education.”  When our politicians tell us lower corporate tax rates are required, is this because without these lower rates, national business will be unable to compete for foreign competition?  This means no country can pursue ideals unless every trading partner country sets the same goals.  The result is a compromised society.

Solving the problem

We could attempt to ensure we only have free trade from countries following the same regulations as we follow.  However a consideration such as minimum wage, may seem unreasonable to impose on another country.  Or should we impose a tariff only where the standard not met by the trade partner is determined by us as not reasonable?   In any event a greater problem is that a country may impose a similar standard for safety, environmental or other goals in order to achieve free trade status, but have no intention of actually enforcing the standard.

Conclusion.

The problem is not easily solved.  It may very well be true that tariffs never achieve economic outcomes, but as natural barriers to trade come down, it seems we do require tariffs in selected cases to achieve moral outcomes.

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