Trade Can Make Everyone Worse Off/Governments are Stupid
Professor Yoram Baumun’s comedic retake of the Principles of Economics appropriately translates “Trade can make everyone better off” to “Trade can make everyone worse off.” Moreover, he translates “Market are usually a good way to organize economic activity” to “Governments are Stupid”.
Amid the onset of new trade agreements, there are many elements of these agreements that make me cynical of their altruistic benefit to global economies, particularly regarding the TPP. The current state of trade is very harmful for a large number of parties, driven by unnecessary government actions from the West. The onset of the TPP is in many ways a means for the USA to exert its political angst against Russia and China, while some of the benefits that it provides to TPP members are questionably negligent. Moreover, excluded parties stand to suffer from this agreement in some ways.
True free trade entails a global removal of trade sanctions, to produce full scale global trade that is mutually beneficial to all countries, and the removal of free trade agreements. There should be no exclusion, regarding selective countries receiving tariff reductions and eliminations, in order to create a truly prosperous global economy, where trade actually has the ability to truly make everyone better off.
BRICS Exclusion from the TPP is Economic Warfare
The BRICS exclusion can be seen as economic warfare from America, and this exclusion is also harmful for America and the rest of the world. China’s exclusion from the TPP clearly stands as a geopolitical attack from America, in order to perpetuate China’s slowed economic growth. Not only are China’s exports of finished products hindered by the removal of tariffs, but the import of materials from China to other TPP members is also offset. Apart from this, the TPP can be seen as a counter attack against the threat of China’s currency, which has been included in the IMF reserve currency basket, and has been responsible for deterring the Fed’s decision making abilities. I tip my hat in approval of China’s devaluation of its currency in August, a step which forced the Federal Reserve to delay hiking interest rates, due to pressure to create a globally minded monetary policy. The TPP has been a way for America to strike back.
Although China was the main target, other BRICS members are also left at a disadvantage:
- As if Western sanctions against Russia were not enough, Russia’s exclusion also has negative connotations for the country, which is struggling amid oil dropping to record new lows.
- Brazil also stands to further suffer economically from its exclusion, yet has a wonderful geopolitical victory of working on a fiber optic cable that would connect to Portugal, and exclude interference from the NSA.
- India’s exports will also suffer from declined exports to America, particularly for textiles. Moreover, India’s biotechnology industry has much to offer to America and the world, yet it is being severely relegated. Critics have referenced the TPP for being responsible for the global increase of drug prices. India could significantly improve the global biotechnology industry and become a stronger trade partner, yet it has been excluded from the TPP, and the potential of its biotechnology industry is being severely relegated. This harms all parties, especially America’s domestic population, which suffers from price gouging from American pharmaceutical companies.
Even the Winners Lose Some
Vietnam for example, credited as the main beneficiary of the TPP, will benefit strongly on a macroeconomic level, as the TPP will be a catalyst for its export oriented economy. Eurasia Group projects that it will be responsible for boosting the country’s GDP growth to 11% to 2025. However, smaller companies will often have little to benefit from the TPP, and now may face an increased inflow of competition from foreign companies that enter Vietnam, and have the economies of scale to benefit from the TPP.
This can be seen by examining a variety of Vietnam’s industries, primarily Vietnam’s textile industry, which has been a major catalyst for Vietnam’s export oriented growth. Textile exports will have a 17% tariff removed, yet a large number of small companies in Vietnam do not have the ability to export to the USA, and are consequently not interested. The biggest winners are companies from China, Hong Kong, Taiwan, and South Korea that will have the necessary capital to produce their own materials in Vietnam. Approximately 90% of materials for textiles are imported from China, therefore making a large number of companies ineligible to receive benefits of the removal of tariffs due to the “yarn forward rule”. Ironically, excluded countries that enter Vietnam are currently more poised to benefit from this industry, and the local companies now face strong competition from larger foreign companies that are able to initially reap the benefits upon entering Vietnam.
Although a large number of companies that export seafood in Vietnam have already experienced benefits from having tariffs removed, similar to what the TPP will offer, a large number of shrimp farmers continue to struggle amid this favorable trade environment. Shrimp Farmers in the Mekong Delta faced a challenging year, as seen with the Tra Vinh Province, where 41% of shrimp farmers struggled, 11% broke even, and the rest made an insignificant profit.
Overall, smaller companies have little to benefit from this “free trade”, while the majority of benefits will go to America, international companies that enter Vietnam, and the few domestic companies that have the economies of scale to benefit from the TPP. Moreover, excluded frontier markets, such as Bangladesh and Pakistan, also stand to suffer from this agreement.
Sanctions Always Make Everyone Worse Off: Iran is a Nice Progression
The removal of western sanctions against Iran is a reason to celebrate, and hopefully a catalysts for increased trade and peace between Iran and the West. Iran has much to offer the global economy, as seen by the recent outflow of oil exports. Moreover, the country is also the world’s 4th largest cement producer, 18th largest automaker, and 16th largest steel producer. Previous sanctions against Iran have harmed all parties, and disturbed the ability for trade to serve as an altruistic economic force.
Apart from depriving countries from free trade, that would be globally beneficial, sanctions are also responsible for humanitarian damage, and for countering the efforts of international NGOs. While the DRPK’s policies have certainly crippled its population, the adverse impacts of Western sanctions have certainly created further unnecessary struggles. Sanctions have historically not only failed to counter the nuclear ambitions of this country, but have also deterred the actions of international NGOs which seek to deliver basic medications for tuberculosis and various infectious diseases. Overall, sanctions deprive countries not only from the removal of true free trade, which benefits all parties, but from the unnecessary creation and perpetuation of social issues.
FX Losses Makes Trade Less Free: Down with the Fed
With essentially every commodity price bottoming out, amid an increasingly strong USD, it is certainly questionable as to the amount of freedom that is in store for commodity based economies, and other countries with weaker currencies. The Fed’s policies have strongly threatened frontier and emerging markets, many of which are still delivering stronger growth despite their economies being tied to commodity exports. As long as the USD remains the world’s unquestioned reserve currency, other economies are not truly free, and remain slaves to the unnecessary FX losses that occur, despite the strong economic fundamentals that are present. There is dire need for a recovery of commodity prices, and the devaluation of the USD, to promote trade that is truly free. Until then, it can be said that America is recolonizing the world with its trade, which is being catalyzed by the unquestioned authority of the Federal Reserve.
A World Without Sanctions and Free Trade Agreements= True Freedom
Trade can make everyone better off, if trade is truly liberated. This can be defined as the removal of all trade sanctions, and the removal of all free trade agreements, which merely serve as a means to perpetuate economic warfare against countries deemed less desirable. True freedom is equality.