From: matus [matus@SNET.Net]
Sent: Monday, October 21, 2002 11:37 PM
To: matus@SNET.Net
Subject: MFD List - Trade economics 101

(A good introductory description of trade, subsidies, tarriffs and how they
perpetuate economic imbalanaces between 1st and third world nations and
extend the lives of suffering and misery that much of the worlds population
lives through every day - Mike)

10- Trade economics 101
----------
Consumers for World Trade
by staff
   "The principles of free trade are really quite
   straightforward. International competition keeps
   American industry on its toes, encouraging innovation,
   and discouraging complacency. Like a lazy student, an
   industry that slacks off will fail to make the grade.
   This has always been the case." (09/03/02)
http://www.free-market.net/rd/184733349.html

http://www.cwt.org/news/articles/September%202002/101.htm

Trade Economics 101

September 3, 2002


It's September. Welcome back to school. Take your seats and listen
carefully. You do not have to be Chairman of the Federal Reserve Alan
Greenspan to understand how international trade benefits you and our
economy. The principles of free trade are really quite straightforward.

International competition keeps American industry on its toes, encouraging
innovation, and discouraging complacency. Like a lazy student, an industry
that slacks off will fail to make the grade. This has always been the case.
Competition, whether it is domestic or international, stimulates
productivity and enhances standards of living both at home and abroad.
Unfortunately, some industries believe they deserve to be protected from
foreign competition. They claim that competition that hurts them is
"unfair." What's unfair about a competitor that puts on a sale to reduce
inventory? Or charges less because his production costs are lower? These are
perfectly legal business practices and are used in our domestic economy all
the time.

The best companies don't whine about competition, they simply take the steps
necessary to compete. In a competitive environment, a wise student plans
ahead, anticipates test questions and prepares thoroughly. Likewise a wise
company or industry plans ahead, anticipates market trends and technological
changes, and remains flexible and open to innovation. This is simple common
sense.

You wouldn't expect a company facing domestic competition to go running off
to Congress or the regulators to have special sales taxes imposed to "level
the playing field." If that happened consumers would be outraged. What's
more, it would hardly help the company improve its products or services. If
government intervened in the market that way, consumers would see fewer
innovations and higher prices. But companies regularly run off to the
government when the competition comes from abroad. Off they go to the
International Trade Commission (ITC) crying "foul play" and asking for
protective tariffs (which are nothing more than sales taxes applied to the
wholesaler). And what do these tariffs do? They usually delay the inevitable
changes that American companies will have to make to remain competitive. And
they cost the rest of the economy and American consumers. They also limit
innovation and choice at the checkout.

Of course, there are some situations where U.S. industries face competition
because of lower wage rates in other countries. This isn't de facto unfair.
This is an indication of what is called a "comparative advantage." Less
developed countries have lower wage rates than developed nations. But that
doesn't mean we should block all the exports of lower-wage countries through
quotas or tariffs. To do that would be to sentence poor countries and poor
workers to high unemployment and poverty. Apparel workers in places like
Bangladesh make less than the same workers in America, but those jobs in
Bangladesh pay a living wage for that economy. If the apparel jobs didn't
exist there, those workers would have no work at all, or worse, they might
fall into prostitution or other unsavory occupations.

Some say this differential in wages is nothing more than exploitation. But
that isn't the case. Poor nations in Africa and Asia and South America need
the jobs that trade creates.

So what do we do about workers here who lose their jobs to overseas
competition because of wage rates? Applying tariffs isn't the answer. A
better answer is to help American workers move up into better jobs here. In
the case of apparel workers, the average wage rate here is the lowest for
any manufacturing industry. It's so low, in fact, that many native born
Americans don't even want these jobs.

Rather than imposing tariffs that only marginally protect the workers of
these industries, our government should help displaced workers to learn new
skills and move on. While protectionist measures may buy time for older
workers who wish to retire with dignity, it wastes the time of younger
workers who should be looking for job opportunities with a future. If
anything is clear in economic history, it is that the march of progress
cannot be delayed for long. As Federal Reserve Chairman Alan Greenspan once
said (in true economist speak), "Thwarting competition by placing barriers
to imports will prevent the needed transitions of the productive capital
stock of the U.S. and other nations that enable it to continuously
concentrate on producing those goods and services most desired by
consumers." In other words, it is supply and demand in a free market that
should determine the employment mix, not government policies.

The only situation in which a foreign competitor should be sent to the
principal's office is when it engages in predatory behavior in the United
States, such as attempting to monopolize a particular industry and drive
American companies out of business. These playground bullies should be held
accountable.

Currently, American companies are not required to show evidence of predatory
behavior when they file an antidumping or countervailing duty suit. They
only need to show that their bottom line has been harmed, or been exposed to
a threat of harm, by a foreign competitor. As a result, foreign companies
and industries are often punished for engaging in normal competitive
behavior. In 1995 the International Trade Commission published a study that
found that the overall cost of antidumping and countervailing duties to the
U.S. economy outweighs any benefits. The study found that in 1991
antidumping and countervailing duties caused a net loss of $1.59 billion in
U.S. gross domestic product (GDP). While those companies and workers
receiving protection in the form of duties saw their profits and wages
increase by $658 million, eliminating this protection would have increased
overall American business profits and wages by $1.85 billion in industries
that were not receiving protection. Clearly, protection of a select industry
comes at the expense of American consumers, who pay higher prices, and other
American firms and their workers, who often lose their jobs.

Free trade benefits all Americans by keeping imports competitively priced
and plentiful. It also stimulates American companies to remain on the
cutting edge of innovation. To guarantee that this is always the case, CWT
urges the reform of U.S. antidumping and countervailing duty laws. A lot of
frivolous suits could be eliminated if American companies were forced to
prove evidence of predatory behavior on the part of a foreign competitor.
Foreign firms should not have to face a law suit as the price of doing
business in America. Nor should every day Americans be forced to pay the
bill.

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