The Injustice of Trade Justice

Any traveller to India will attest to the fact that it is an utterly compelling country. The colours, religions, food, smells, the wealth and the poverty are all unlike anywhere else. One thing that is particularly unique about the country is the cars; the ubiquitous 1950s shaped Ambassadors crowd the streets and negotiate the heaving New Delhi nightmare that is its traffic. As anti-free trade activists gathered around the world under the banner of Trade Justice, the Ambassadors epitomised why free people around the world choose free trade and why anti-globalisers are wrong to block it.

The Ambassador’s design isn’t the only 1950s feature of the cars. The smoke belching out of their exhausts, the heavy steering, lack of air bags and other basic safety features all hark back to an era now long forgotten in modern motor manufacturing. Indians are forced to drive these cars not because they are strangely sentimental, but because trade protection prohibits them from driving better, cheaper, cleaner and safer cars. Decades of complicated trade restrictions protected the Indian motor industry, blocking almost all imports and ensuring that ordinary Indians have to pay way too much for bad cars. Of course the trade protection only protected the elite Brahmins and kept most people locked in unimaginable poverty.

Some of the wealthiest countries that enjoy the highest standards of living were once dirt poor. For instance, as Johan Norberg of the Swedish think tank Timbro points out, “in 1870, Sweden was poorer than Congo today, people lived 20 years shorter than they do in developing countries today and infant mortality was twice as high as in the average developing country.” The only reason that Sweden became wealthy and its people healthy and prosperous, is because it liberalised its economy and opened itself to trade.

Free trade allowed Swedes to specialise in the things that they are good at doing and allowed them to export goods. They exported so that they could earn money with which to import the things that they weren’t good at producing. Because their economy was freer, Swedes were continually forced to think of new and better ways to produce the goods and services that people want. Sweden now has a massive welfare state and an economy that leftists around the world look up to, but it was precisely the opposite of their current government policies that created their wealth.

This month, anti-free-trade organisations from around the world have been organising demonstrations and marches to denounce globalisation. The labour unions, concerned with job losses, seem to have joined forces with the clergy and with environmentalists under the banner of Trade Justice. One could attach any number of euphemisms, such as Fair Trade, to this movement but they all mask the same thing; trade protection.

Anti-globalisation activists under whatever banner they demonstrate are often right to campaign against the trade protectionism in rich countries. The agricultural trade barriers that the European Union keeps in place ensure that poor countries cannot sell their farm products in which they have a comparative advantage. Europeans should be, and often are, equally outraged by the barriers that cost them billions of euros and force them to pay more for their food.

Research shows that poor country trade barriers are higher, on average, than rich country trade barriers. The anti-globalisers argue that these barriers are necessary to protect the ‘infant industries’ in poor countries; stop them from being driven out of business by competitors from rich countries and give them time to grow. Yet the protection given to infant industries can stop them from ever growing up, as evidenced by India’s dirty, dangerous and expensive domestic cars.

Poor country trade barriers also mean that consumers in those countries are denied access to products that the rest of the world enjoys. Allowing consumers greater choice of goods and services at the lowest possible prices improves their welfare. For instance, if consumers can pay less for Chinese clothes than for locally produced clothes, they will have more money left over for other goods or will be able to save more. But while special interest groups can point to the damage done through lost jobs from Chinese imports, nobody points to the millions of consumers that can clothe themselves better at lower cost or to the jobs created elsewhere in the economy by the spending of money saved on clothes. The diffuse benefit and concentrated costs normally mean that the special interest groups win.

The ANC-led government should be congratulated for tearing down the many trade barriers that kept Apartheid South Africa’s industry protected and inefficient. The more open and liberalised our economy, the better able we will be to adapt our economy so that we continue to produce goods and services that people want. Just like 19th century Sweden our economy will grow and a growing economy will benefit everyone.

Indians can hardly be proud of their protected industries – the Ambassador is surely a source of Indian shame. It is hard to imagine why South Africans should be proud to buy local products that cannot compete internationally. A dynamic, growing economy that allows us to earn foreign exchange to buy clothes from China, cars from Germany and electronics from Korea is what would really make us proud. There will always be winners and losers in free trade, but centuries of evidence from around the globe shows us that overall the winners far outweigh the losers. Attempts to block free trade will harm economic growth and punish the poor. This is hardly something to be proud about and hardly the sort of justice we should seek.

Author: Richard Tren is a director of the South Africa based health advocacy group, Africa Fighting Malaria. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/19 April 2005