Results for “fair trade ” 243 found
Does Fair Trade Help Poor Workers?
Does Fair Trade help poor workers? Probably not says Don Boudreaux in this excellent, short video from the Everyday Economics series at Marginal Revolution University.
As is well known, however, Don is a rabid, free-market economist with ideological blinders who has been captured by corporate interests. So let’s ignore what Don says and consider what William MacAskill, author of Doing Good Better (reviewed earlier this week) has to say. No one can fault MacAskill’s charitable bona-fides:
MacAskill’s own pledge is to donate everything he earns above about $35,000 per year, adjusted using standard economic measures for inflation and cost of living, to the organizations that he believes will do the most good. Since his bar is roughly at the UK median income—such that half the population earns more each year, and half the population earns less—he’s certainly not condemning himself to a life of hardship; rather, he is pre-committing to staying roughly in the middle of the national income distribution even as his earnings go up over time.
That said, his pledge means giving away 60 percent of his expected lifetime earnings.
When I ask him the inevitable questions about whether this isn’t rather a lot to sacrifice for one person, MacAskill shrugs modestly and smiles broadly. “Imagine you’re walking down the street and see a building on fire,” he says. “You run in, kick the door down—smoke billowing—you run in and save a young child. That would be a pretty amazing day in your life: That’s a day that would stay with you forever. Who wouldn’t want to have that experience? But the most effective charities can save a life for $4,000, so many of us are lucky enough that we can save a life every year through our donations. When you’re able to achieve so much at such low cost to yourself…why wouldn’t you do that? The only reason not to is that you’re stuck in the status quo, where giving away so much of your income seems a little bit odd.”
So what are MacAskill’s views on Fair Trade? Why they are the same as Don’s!
…when you buy fair-trade, you usually aren’t giving money to the poorest people in the world. Fairtrade standards are difficult to meet, which means that those in the poorest countries typically can’t afford to get Fairtrade certification. For example, the majority of fair-trade coffee production comes from comparatively rich countries like Mexico and Costa Rica, which are ten times richer than the very poorest countries like Ethiopia.
….In buying Fairtrade products, you’re at best giving very small amounts of money to people in comparatively well-off countries. You’d do considerably more good by buying cheaper goods and donating the money you save to one of the most cost-effective charities…
Fair trade markets in everything?
“Fair Trade” Cocaine Is A Thing Now
For instance:
Even more intriguing is the use of marketing strategies that mimic corporate social responsibility initiatives. These may take the form of financial sponsorship of organizations likely to be viewed favorably by online drug consumers. For example, one Australian drug vendor recently advertised their enterprise as a: “Proud financial supporter of WikiLeaks and Bluelight.”
At the more extreme end of socially progressive marketing strategies used by online dealers are those that involve the promotion of drugs on the basis of supposedly “ethical”, “fair trade”, “organic” or “conflict-free” sources of supply:
“We are a team of libertarian cocaine dealers. We never buy coke from cartels! We never buy coke from police! We help farmers from Peru, Bolivia and some chemistry students in Brazil, Paraguay and Argentina. We do fair trade!”
Naturally, it is impossible to verify these claims.
For the pointer I thank Annie Lowrey.
Facts about FairTrade
We might think of sub-Saharan subsistence economies when we think of
Fairtrade, but the biggest recipient of Fairtrade subsidy is actually
Mexico. Mexico is the biggest producer of Fairtrade coffee with about
23% market share. Indeed, as of 2002, 181 of the 300 Fairtrade coffee producers were located in South America and the Caribbean. As Marc Sidwell points out,
while Mexico has 51 Fairtrade producers, Burundi has none, Ethiopia
four and Rwanda just 10 – meaning that "Fairtrade pays to support
relatively wealthy Mexican coffee farmers at the expense of poorer
nations".
The article offers many other points of interest. For instance:
By guaranteeing a minimum price, Fairtrade also encourages market
oversupply, which depresses global commodity prices. This locks
Fairtrade farmers into greater Fairtrade dependency and further
impoverishes farmers outside the Fairtrade umbrella. Economist Tyler
Cowen describes this as the "parallel exploitation coffee sector".Coffee
farms must not be more than 12 acres in size and they are not allowed
to employ any full-time workers. This means that during harvest season
migrant workers must be employed on short-term contracts. These rural
poor are therefore expressly excluded from the stability of long-term
employment by Fairtrade rules.
In other words, it's mostly a marketing gimmick.
Who benefits from fair trade?
…conservative commentator Philip Oppenheim…argued recently that in
Britain, it’s supermarkets that profit most from fair trade sales. They
charge a premium for fair trade bananas, for example, while a
"minuscule sliver ends up with the people the movement is designed to
help"…
Here is more. In case you don’t know, fair trade sells a product at a premium price, under the promise that the workers are treated better and paid more. But will that improve living standards? Hmm…this sounds like a problem in tax incidence theory. To make the best possible case for fair trade, I will assume the promise of good treatment is credible.
Let’s say the supermarket has some market power and would have liked to price discriminate on coffee sales. Now you can buy either normal coffee or fair trade coffee, and the richer,
more conscientious people are willing to pay more for the latter. Some people can be charged lower prices, while others pay higher prices. Fair trade will likely increase coffee output, relative to a world with no fair trade. Profits will go up. But what happens to input prices? Will wages of Rwandan coffee producers rise?
It depends on the alternative to market segregation. It is possible that if only a single kind of coffee can be sold, the market would opt for the more expensive coffee, involving better treatment of all workers. Even if you don’t expect this today, it might happen in a few years’ time. If McDonald’s can improve the treatment of all the chickens it buys, maybe Starbucks or some other force will force the coffee sector to clean up its act. So development optimists should be suspicious of fair trade. It could diminish long-run general progress by giving the conscientious an outlet for their charity. By splitting up the market, we are institutionalizing especially poor treatment for one class of workers. Furthermore the high profits from price discrimination imply that
producers will be keen to continue such segregation rather than end it.
How about a genre called "Exploitation Coffee"? You pay less, and they promise to treat the workers especially poorly. That wording is a less effective marketing ploy, but that is what quality differentiation and indeed "fair trade" boils down to.
It is well known that price discrimination can either raise or lower the average level of prices, but it does increase price dispersion. We can expect it to increase wage dispersion as well. It is harder to predict whether price discrimination will raise or lower wages at the bottom level of the scale.
By increasing output, fair trade can bid up wages for coffee producers. But fair trade also diverts some drinkers from Exploitation Coffee. If the switching effect is large, wages for producers of Exploitation Coffee can fall. Just as we have created two classes of market prices, so have we created two classes of market wages. If you believe that coffee producing firms have some degree of monopsony power, this is sustainable and again will increase profits but possibly worsen human misery for the poorest.
These are all "existence theorems." I would not be surprised to learn that current benefits from fair trade are positive. But since I am a development optimist, I have reservations about the institution in the longer run.
Exam question: How much of this analysis also applies to free-range vs. factory-farmed chickens? Hint: not all of it (why not?) Comments are open…and might you know of empirical work on how fair trade influences wages?
The racialization of international trade preferences
…we find that white individuals have become less supportive of trade than minorities and that whites are more likely than minorities to favor trade with highly similar countries. We suggest that minority support for trade is due to four well‐documented differences in the psychological predispositions of whites and minorities in the United States. Minorities have lower levels of racial prejudice, are lower in social dominance, and express less nationalism than whites. At the same time, there is evidence of rising ingroup racial consciousness among whites. Each of these characteristics has been independently linked to trade support in a direction encouraging greater support for trade among minorities. As the United States grows ever closer to becoming a “majority minority” nation, the racialization of trade attitudes may stimulate shifts in the likely future of America’s trade relationships.
That is from a new paper by Diana Mutz, Edward D. Mansfield, and Eunij Kim. Via the excellent Kevin Lewis.
No, China did not win the trade war
This paper studies the heterogeneous impacts of the US-China trade war through linkages in global value chains. By building a two-stage, multi-country, multi-sector general equilibrium model, this paper discusses how imports tariffs effect domestic producers through internal linkage within industry and external linkage across industries. The model validates that imports tariffs on Chinese upstream intermediate goods negatively affects US downstream exports, outputs and employment. Effects are strong in the US industries that rely much on targeted Chinese intermediate goods. In addition, this paper differentiates the impacts of the two rounds of the trade war by comparing tariffs on intermediate goods and consumption goods. This paper estimates that the trade war increases US CPI by 0.09% in the first round and 0.22% in the second round. Finally, this paper studies the welfare effects of the trade war. This paper estimates that the trade war costs China $35.2 billion, or 0.29% GDP, costs US $15.6 billion, or 0.08% GDP, and benefits Vietnam by $402.8 million, or 0.18% GDP.
That is by Yang Zhou of the University of Minnesota, via the excellent Kevin Lewis. Those numbers should not come as a surprise, they do indicate that both countries are worse off, but they also show that a lot of the bargaining power does in fact reside on the side of the United States.
China trade negotiation fact of the day
Brussels has been striving to secure the deal for six years, as it seeks to prove it has the negotiating muscle to broker meaningful agreements with Beijing that can defend European companies from unfair competition.
The European Commission and the bloc’s foreign policy chief signalled a tougher approach to China in March in a landmark document that branded it a “systemic rival” in some areas — an allegation Beijing denies. Ms Weyand, the chief official working for Phil Hogan, the EU’s trade commissioner, said that “we are moving at a snail’s pace on the investment agreement”.
That is from the FT., and of course that hardly counts as much progress. Elsewhere you will see Paul Krugman suggesting Trump has lost the trade war, but I don’t think he comes close to even seeing what the trade war with China is about. No matter what Trump says, the trade war is not about lowering the trade deficit. It is about (for a start) two major considerations: a) ensuring that national security-motivated partial economic decoupling takes place on terms not so unfriendly to America, and b) giving America levers to make sure China does not make such significant inroads into the world’s tech infrastructure, most notably with 5G but not only.
The stipulation of Chinese purchases of American exports, which probably they will not and cannot meet, is in fact a lever to give the United States enforcement power over the less tangible parts of agreement, which is indeed most of the agreement. We want China to be in default of the agreement terms, so we may threaten them with tariffs to enforce compliance elsewhere, and so that is a better rather than worse outcome for the United States.
On the trade war, agnosticism is still the correct opinion, at least so far, as we are not even sure we know of the full agreement, or if America and China are visualizing signing literally different versions of the “same” agreement. And even once (or if) the full text(s) is revealed, we still won’t for some while know how either a) or b) are going, much less relative to the relevant counterfactuals.
In general, I am finding that commentary on the trade war is of relatively dubious value, in part for partisan reasons. The key here is to set aside your political views, and spend a lot of time talking with national security people.
Christopher Balding on the new China trade deal
Here is the final paragraph, there is much more detail throughout, recommended:
If we take what is known about the deal, its role as a Phase I deal leading to later deals, and assume it gets executed as described, with each side living up to their commitments, I think it is fair to describe this deal as a solid step forward. Realistically however, each side seems to be positioning themselves for the expected failure of the agreement and little reason to believe the deal will be executed as described. The Trump administration has maintained significant leverage if China does not follow through on its commitments and I have little realistic reason to believe China will meet its commitments. At the end of the day in any contentious negotiation, it comes down to placing risk adjust trust in your counterpart to execute their side of the agreement. Each side is signaling they have little faith in their counterpart. If we start from that premise, the Trump administration seems to have positioned themselves well expecting this deal to eventually collapse but also lower tariffs if by chance China does abide by it commitments.
And:
…I would have to put the risk that this deal doesn’t see 2021 as close to 50%.
Here is the full post.
Is the trade war with China a carbon tax?
I know that in my Twitter feed I am told a “carbon tax is GOOD” and the “Trumpian trade war with China is BAD.” But isn’t Trump’s trade war, at least indirectly, a tax on carbon emissions?
Most Chinese exports are manufactured goods, and they are produced in a fairly carbon-intensive manner. Furthermore, it doesn’t seem that Vietnam is able to pick up the slack, so it is not just a case of substituting from one dirty carbon emitter to another. It seems the trade war is genuinely restricting trade, and over time it will restrict the consumption and production of carbon-intensive goods. China is by far the exporter with the most to lose.
Of course the targeting of these new taxes is far from ideal from an environmental point of view, nor are they contingent on emissions in the proper manner (still, China is hardly on the verge of being able to switch into clean manufacturing, and in that sense contingent may not matter so much). And it is hardly the case that Trump has “green motives.”
Still, put aside all the imperfections — don’t we finally have a carbon tax — and a framework for improving it — that so many commentators have been wanting all along? Won’t this give Elizabeth Warren the chance to really fine-tune the apparatus?
On these points I am indebted to some remarks from Ray Lopez. And here is my earlier 2016 post “Tyrone on why Democrats should vote for Donald Trump.“
Do consumer interests shape trade policy?
Alas, it seems not, or so it is reported by Timm Betz and Amy Pond:
Why are some countries more open to trade than others? Prominent explanations emphasize differences in the influence of voters as consumers. Consumers benefit from lower prices. Because governments in democracies are more responsive to voters, they should implement lower tariffs. We develop and evaluate an implication of this line of argument. If lower tariffs are a response to consumer interests, lower tariffs should be concentrated on products most relevant to consumers. Using data on consumption shares across product categories, we report evidence that consumer interests do not account for lower tariffs. Governments place higher tariffs on goods with higher consumption shares, and we find no evidence that this relationship attenuates under more democratic institutions. There may be a variety of reasons why more democratic states are engaged in higher levels of international trade. A larger concern for consumer interests, however, is likely not among them.
Is the trade war with China over?
That is the topic of my latest Bloomberg column, here is one excerpt:
The basic problem with any U.S.-China trade conflict is that there is not very much the Chinese are interested in offering, and their intransigence is more than just a bargaining stance. They are willing to buy more American soybeans and manufactured goods (and probably wish to anyway), and they might give U.S. financial institutions freer rein within China. But they won’t dismantle their system of state-owned enterprises, as those companies are among China’s most powerful special interest groups. Nor will China give the major U.S. tech companies free rein in China, if only for reasons of national security and China’s desire to build a surveillance state based on data controlled by China.
Overall, the grievances on the U.S. side are significant, and the possible concessions on the Chinese side are minor. So the most likely outcome is only modest progress in difficult negotiations. It’s also likely that the power and focus of the Trump administration will wane as it deals with investigations from the new Democratic-controlled House of Representatives. It might be said that the trade war you now see is the trade war you are going to get. Foreign relations gridlock will set in.
Nonetheless, it’s not quite fair to describe the trade war with China as a problem that Trump started and then pretended to solve. The reality is that hostility toward Chinese trade practices has been building for some time. Anti-China measures have long commanded bipartisan support not only in Washington but also among corporate leaders, who see themselves as victims of unfair Chinese trade practices and espionage. This is an issue that predates Trump, and he deserves some credit for doing something to help solve it.
Do read the whole thing, which contains other points of interest.
We Cannot Avoid the Ugly Tradeoffs of Bail Reform
Many people think that “innocent until proven guilty” implies that everyone should be let loose on their own recognizance before trial. A moment’s thought reveals that this is idiotic. The white supremacist Dylann Roof killed nine people on June 17, 2015 at the Emanuel African Methodist Episcopal Church. His image was captured on security cameras and he was arrested the next day. Roof’s trial, however, didn’t start until more than a year later, December 7, 2016, and he wasn’t convicted of anything until December 15, 2016. Should Roof have been released before trial because he was “innocent until proven guilty”? Of course not. I stand second to none in demanding high standards before the state can deprive a person of their liberty but high standards do not demand binary divisions. Tradeoffs are everywhere and when the evidence against the accused is strong and the danger to the public is high, it’s not unreasonable to deprive the legally innocent of some liberty prior to trial. The tradeoffs are ugly, as they always are when trading off two sacred values, but the tradeoffs cannot be avoided.
Consider now the issue of bail reform. In the days when the default was that every accused person was held before trial, the idea of money bail was seen as a liberal, progressive measure that allowed more people to get out of jail. Today the natural default is seen as release until trial and bail is therefore perceived as a conservative, regressive measure that unjustly and unfairly keep poor people in jail. As a result, reformers are trying to reduce or eliminate money bail but they are doing so without thought for the ugly tradeoffs.
The bail reformers frame the issue in a way that I think is misleading. Anytime someone can’t pay for bail they call that “unaffordable bail”. Well that’s literally true but it also gives an incorrect impression of destitute people being denied their freedom because they don’t have a buck. To be sure that does happen but here’s an open secret of the judicial process. Judges sometimes set bail expecting and indeed hoping that it won’t be affordable. Everyone knows this but the bail reformers don’t like to acknowledge it because it brings up the ugly tradeoffs. Consider the following, from Chicago, where the bail reform movement is very active:
…there are about 2,700 people being held in jail because they can’t afford bail but [the Chicago court official noted] 87 percent had a current violent or weapons-related charge, a risk assessment recommending “maximum conditions” if released, an assessment flagging them for violence, and/or an active probation or parole case.
In other words, the judges set a high bail amount for a reason. Under orders from the Chief Judge, however, Chicago has been trying to reduce bail:
Chicago and its surrounding county was supposed to be a beacon of bail reform. After Cook County Chief Judge Timothy C. Evans imposed new rules and made sweeping changes to the bench, advocates hoped that virtually no one would be jailed because they didn’t have the money to make bail.
…At first, it seemed to have the intended effect: In the first month after the order, the number of people who had to post money bonds dropped by more than half, while the number of people who were released on their own recognizance—allowed to leave upon promising to return for trial—doubled. Bail amounts also decreased, as did the number of people in jail.
So what happened when bail reform met reality? Under the new system, judges that set a lot of “unaffordable” bail looked bad but most of the people who can’t pay their bail can’t pay not because they are especially poor but because the judge thought that they were a danger to the public. Judges continue to believe that many defendants are dangerous but now rather than setting bail they simply deny bail altogether. In fact, under the new system the rate of denying bail has risen fourfold. In addition, judges soon discovered that the cost of releasing defendants in terms of crime, failure to appear, and perhaps bad publicity was too high so they started to ignore the demands of the Chief Judge.
…But a year later, [the Coalition to End Money Bond] found that not only are judges still setting bail amounts that defendants can’t afford—meaning that more than 2,700 people are in Cook County Jail because they don’t have enough money [recall these are the 2,700 with serious records, AT] —but that things are getting worse. The initial gains “have steadily evaporated and bond court outcomes are now approaching pre-Order levels,” the report states. The authors note that if judges were sticking to the order, there would be no bail amounts set at levels that defendants can’t afford; instead, it says, nearly 30 percent of bail amounts were unaffordable. Between November 2017 and June 2018, judges set unaffordable bail amounts for more than 1,350 people.
Bail reformers are blind to the tradeoffs that must be made between public safety and the rights of defendants. Since the reformers are blind to these tradeoffs they can’t see that money bail actually helps to alleviate these tradeoffs. Reformers think that money bail simply keeps the poor in jail but in fact money bail is a half-way house between release on own recognizance and hold until trial. Money bail lets judges release more people. Bail reformers assume that if they eliminate money bail then judges will release everyone. In fact, as the Dylann Roof case illustrates, that is never going to happen. And when the public realizes that judges are releasing lots of defendants who subsequently commit more crimes there will be a backlash, as is already evident in Chicago. By eliminating the half-way house of money bail, bail reformers force judges to either release or hold until trial. Some people who under the current system are released on bail will, under the new system, be held until trial. Indeed, the unintended consequence of bail reform may be that more people are held until trial with no possibility of release.
Sometimes poor people are unfairly held until trial. Eliminating money bail, however, is a crude and dangerous approach to this problem. Instead we should deal with it directly by flagging and reevaluating jailed, non-violent offenders with low bail amounts, use alternative release measures such as ankle bracelets and most importantly, we should look to the constitution. The founders understood the ugly tradeoffs which is why the constitution guarantees the right to a “speedy trial.” Unfortunately, that right today is widely ignored. My route to reform would begin by putting teeth back into the constitutional right to a speedy trial.
Addendum: Illinois doesn’t allow commercial bail so I haven’t mentioned bounty hunters but in other parts of the country their role in the criminal justice system is important, even if widely misunderstood and disparaged. My paper (with Eric Helland) shows that bounty hunters are more effective than the police at recapturing escaped defendants. More specifically, compared to similar defendants released using other methods, defendants released on commercial bail are much more likely to show up at trial and are much more likely to be recaptured should they flee. See also my adventures as a bounty hunter.
Are Americans learning to love free trade?
The Chicago Council on Global Affairs has completed its 2018 survey on American attitudes toward trade (full disclosure: I serve on board of advisers for the Chicago Council survey), and a funny thing happened to U.S. opinions on the subject. As Dina Smeltz and Craig Kafura write in their latest policy brief, Americans love trade way more than they love Trump…
The survey itself reports:
The highest percentages ever registered in this survey (since 2004) say that trade is good for the US economy (82%), good for consumers like you (85%), and good for creating jobs in the US (67%).
That is from Daniel Drezner. I would raise the cautionary note that perhaps these newfound positions will not survive the removal of Trump from office, most of all among Democrats.
Is the bilateral approach to trade liberalization really so bad?
That is my latest Bloomberg column, here is one excerpt:
It seems we are bureaucratizing trade as much as liberating it. Perhaps that is no surprise. If you wish to induce numerous nations to sign on to a deal, you will have to offer exceptions, clauses and conditions for them. The eventual result is that a free-trade treaty morphs into a managed-trade treaty. I still believe that the various trade agreements that have been passed or drawn up are for the better, but I also can’t help being disappointed by them. Note also that progress through the World Trade Organization had ground to a halt even before the election of Trump.
We are now in a setting where the world’s No. 2 economy — China, on its way to being No. 1 — is strongly opposed to free-trade ideals and free flows of information, especially for its own home market.
Enter bilateralism. The smartest case for trade bilateralism is that trade in many goods is already fairly free, but some egregious examples of tariffs and trade barriers remain. Look at agriculture, European restrictions on beef hormones in beef, and the Chinese unwillingness to allow in foreign companies. Targeted strategic bargaining, backed by concrete threats emanating from a relatively powerful nation — in this case the U.S. — could demand removal of those restrictions. Furthermore, the negotiating process would be more directly transactional and less cartelized and bureaucratic.
My colleague John Nye, an economist at George Mason University, has argued that the free-trade revolution of the 19th century came about because of a major trade agreement between Britain and France in 1860. Other European nations were fearful of being locked out of subsequent deals, and they hurried to sign bilateral trade treaties with Britain and France. There was a competition to make deals rather than cartelization of the process.
That said, our current pursuit of this approach does not seem to have enough allies on our side, and thus I doubt if it will work. There is much more in the rest of the column.
The “Trade Talks” podcast series
Chad Bown writes to me:
“I write and take the liberty of drawing your attention to a new and weekly podcast series called Trade Talks that Soumaya Keynes (The Economist) and I are publishing.
According to the iTunes description, we promise to
cohost a weekly podcast on developments in international trade and policy. From trade wars to trade deals, this podcast covers the week’s trade news with insights and economic analysis from two of the world’s top trade geeks.
What more could you want from a couple of economists?
How to find the podcast?
- Subscribe (for free) to Trade Talks in iTunes, Google Play, Stitcher, TuneIn, or from most anywhere you find podcasts, whether on an iOS or Android device.
- Either click through one of the blue links above, or type “Trade Talks” into the search bar of your podcast directory (and look for our logo, below).
Here are our episodes thus far: