Surprisingly there isn’t actually a lot of research looking at how free trade affects industrialized countries, but Virginia Postrel published an article in the New York Times in January that explored just this topic.

She reported on an academic study of the effects of the Canada-U.S. Free Trade Agreement. The study, by Daniel Trefler of the Rotman School of Management at the University of Toronto.

Trefler’s study focused on the effects that liberalizing tariffs between the two countries had. Postrel writes,

Before the agreement went into effect in 1989, more than one in four Canadian industries were, in fact, protected by tariffs of more than 10 percent. Those industries included not only businesses known for their protectionism, notably apparel makers, but manufacturers of a wide range of products, from beer and pretzels to coffins, plastic pipes and paper bags.

Before the agreement, imports from the United States faced an average tariff of 8.1 percent and an effective tariff of 16 percent. The effective rate included import taxes on the final product and tariffs plaid on raw materials. Someone importing a chair could face a direct tariff on furniture, for example, but could also pay indirect tariffs on wood and upholstery fabric.

At the very beginning of the free trade agreement, those industries that were the most heavily protected took big hits as imports from the United States became even cheaper. According to Trefler, such industries, saw employment declines of as much as 12 percent, and the free trade agreement as a whole reduced employment by 5 percent in industries that had previously been protected by tariffs.

But, over the long run, the Canadian economy regained those jobs and has one of the healthier industrial bases in the developed world. According to Trefler,

Within 10 years, the lost employment was made up by employment gains in other parts of manufacturing. . . The average effect of the U.S. tariff cuts on Canadian employment was thus a wash: the employment losses by less-productive firms offset the employment gains by more productive firms.

And rather than force Canadian wages into a downward spiral, as had been predicted by opponents of the free trade agreement, Canadian wages increased by 3 percent over the eight years studied. A small increase to be sure, but not the predicted decline.

So what did Canadians get out of the free trade agreement if employment was a net wash and wages increased just slightly? It got a big productivity boost. Postrel writes,

The big story is that lowering tariffs set off a productivity boom.

Formerly sheltered Canadian companies began to compete with and compare themselves with more-efficient American businesses. Some went under, but others significantly improved operations.

The productivity gains were huge. In the formerly sheltered industries most affected by the tariff cuts, labor productivity jumped 15 percent, at least half from closing inefficient plants. “This translates into an enormous compound annual growth rate of 1.9 percent,” he [Trefler] wrote.

But closing plants is not the whole story, or even half of it. Among export-oriented industries, which expanded after the agreement, data from individual plants show an increase in labor productivity of 14 percent. Manufacturing productivity as a whole jumped 6 percent.

Free trade — its good for you. Even you folks in the industrial world. So loosen up those protectionist tariffs and quotas already, and give the developing world a fair chance.

Source:

What happened when two countries liberalized trade? Pain, then gain. Virginia Postrel, The New York Times, January 27, 2005.

Surprise — Free Trade Works Out In The End is a post from: Overpopulation.Com

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In order to appease U.S. textile companies, the Commerce Department prepared to impose a number of emergency quotas on the import of jeans, underwear and other clothing products from China. U.S. clothing retailers filed a lawsuit arguing that they would suffer irreparable damage if the emergency quotes were to go into effect.

Goldberg issued a temporary injunction barring the quotas from going into effect, agreeing that retailers would suffer irreparable harm from the quotas and that the quotas should be blocked while the court heard the case.

Under trade agreements that the United States is signed, this year it must remove its textile quota system. Textile companies fear that once the artificial barriers against Chinese textiles are removed, that Chinese textiles will flood the U.S. market. And that would be bad how?

The textile companies created this very situation. Rather than gradually phase out the quotas, they clung to them to protect their anti-competitive products, and now face the prospect of the quotas disappearing with one fell swoop.

The U.S., meanwhile, continues to play the role of preaching the wonders of free trade and the importance of adhering to international trade agreements . . . unless U.S. special interests find this inconvenient, in which case all bets are off and suddenly protectionism is all the rage.

Sources:

U.S. Judge Bars Limits on Imports of China Textiles. Reuters, December 31, 2004.

US Textile Makers Lose Bid to Cap Chinese Imports. Xinhua News Agency, January 2, 2005.

U.S. Judge Blocks Chinese Textile Quotas is a post from: Overpopulation.Com

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How pathetic. The developed world should eliminate their ridiculous trade barriers with developing nations permanently. Such barriers have done far more long-term damage to the developing world than the tragic — but one-time — horrors created by the December 2004 tsunami.

Along with further worsening poverty in those countries, trade barriers directly contribute to corruption and other problems in developing nations by making it difficult for enterprising individuals to succeed in the market.

Anti-free traders shouldn’t worry, however — special interest groups here in the United States were quick to defend their particular fiefdoms from liberalization.

Deborah Long, the hack in charge of speaking for the Southern Shrimp Alliance, argued that suspending duties on Asian shrimp imports would be unfair. Lloyd Woods, who serves the same role with the American Manufacturing Trade Action Coalition, argued that the best way to help Sri Lanka, Thailand and India wasn’t to eliminate textile tariffs against those country, but rather impose import quotes on Chinese textiles!

Straight from the land of the tariff and the home of the scared s–tless by the prospect of truly free trade.

Source:

Rich nations are urged to ease trade with affected countries. Elizabeth Becker, The New York Times, January 15, 2005.

Developed Countries Should Lower Trade Barriers, Period is a post from: Overpopulation.Com

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A similar East African free-trade zone was set up in 1967, but collapsed in 1977 as wars devastated the region.

Under the terms of the agreement creating the East Africa Community Customs Union, Kenya, which has a more industrialized economy than Tanzania and Uganda, will pay duties on goods it exports to the other two until 2010, when such duties will disappear.

The three countries will also set identical tariffs for imports from outside the three countries.

Source:

East Africa trade accord launched. The BBC, January 1, 2005.

Kenya, Tanzania, and Uganda Trade Bloc Accord Goes Into Effect is a post from: Overpopulation.Com

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