Apples and Oranges, and free trade

I am very discouraged to see so many progressives opposing free trade. However, I can see why. Many recent free trade pacts have not been beneficial to either country. That being said, protectionism is not the answer.

Truly free trade works. Each side gets more goods and services for less effort, otherwise there would be no trading, free or otherwise.

However, many of the so-called "free trade" policies are not free trade at all and do not benefit anyone other than the large multinational corporations at the expense of the citizens of both nations.

An example of what is right about free trade and how it can go terribly wrong is in the extended entry.

Let's take the following simple hypothetical trade scenerio involving apples and oranges and the states of Washington and Florida.

Washington produces apples.
Florida produces oranges.
Oranges do not grow in Washington.
Apples will grow in Florida, but not very well.

Let's assume trade is very restricted between the two states:

     1. Washington has a surplus of apples.
     2. Florida has as many oranges as it needs, but is spending considerable resources growing apples.

Not a very good situation.

Now lets assume there is free trade:

     1. Washington is able to trade its surplus apples for oranges.
     2. Florida converts its apple orchards to orange groves because trade gets apples for less than growing it themselves.
     3. Agricultural output is optimized in both states.
     4. Both sides benefit from trade.

However, things generally aren't that simple. Let's assume the apple lobby in Florida is very powerful. Since elections in Florida are so close, the apple lobby has considerable clout. The apple lobby demands subsidies to "save jobs" and gets them. Here's what happens:

     1. Subsidies allow Florida apple growers to undercut their Washington counterparts.
     2. Washington farmers don't get as much for their apples, hurting the Washington economy.
     3. Florida has more apple orchards and fewer orange groves, reducing Florida's agricultural output.
     4. Florida taxpayers pay higher taxes for the subsidies.

Not as good a scenerio as free trade.

Now let's try a very illogical, but very plausible scenerio.

Florida's apple lobby is so powerful that with the subsidies, Florida growers can now sell apples in Washington for less than Washington growers can:

     1. Washington's economy is wrecked. They are worse off than before. Economic migrants (former apple growers, perhaps) leave the state for better places.
     2. Florida's taxpayers pay even higher taxes.
     3. Total agricultural output of both states is considerably reduced.
     4. Florida's apple growers are making out like bandits.

So as we can see, it is not the trade itself that is the problem. It is the corporate welfare and all that comes with it that made the trade pact a disaster for everyone but the hypothetical Florida apple industry.

Tags: free trade (all tags)

Diaries

Advertise Blogads