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Free Trade: the best foreign policy tool we have
Posted by: Jon Henke on Tuesday, July 25, 2006

For a variety of reasons, the importance of a story does not always bear a strong correlation with the attention given it. In that vein, Jane Galt refers to The Economist for an under-remarked but very important bit of bad news. The Doha Round of trade talks has collapsed.
This is a tragedy, especially for the developing world. Last year, the World Bank estimated that global gains from trade liberalisation would equal roughly $287 billion, of which $86 billion would accrue to developing nations, lifting at least 66m people out of poverty. [...] With the sun finally setting on the hopes for Doha, there may be very dark times ahead for trade.
Agricultural subsidies may be the most unsupportable — even immoral — thing the US government does. And it's not limited to the United States. While Congress sends billions of dollars to prop up those poor 'family farmers' at, e.g, ConAgra, these are the kind of people who lose.


What's more, we're actually paying tens of billions of dollars in agricultural subsidies per year — mostly to big businesses — in order to keep these people from selling us food at lower prices.

If the United States is serious about spreading freedom around the world, the most effective thing we could do would be to eliminate tariffs, trade barriers and agricultural subsidies. Let the poverty stricken third world countries exercise their comparative advantage. If we were serious.
 
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Agricultural subsidies also allow America to provide thousands of seasonal job opportunites for undocumented immigrants that might otherwise be lost to places like Guatemala and Honduras.
 
Written By: Unaha-closp
URL: http://
If the United States is serious about spreading freedom around the world, the most effective thing we could do would be to eliminate tariffs, trade barriers and agricultural subsidies. Let the poverty stricken third world countries exercise their comparative advantage. If we were serious.
A. Freakin’. Men.

This is purely a political problem, since undoubtedly the trade reps understand the basics of comparative advantage (and surely more than that). No one has the stones to simply yank the subsidies, however, despite the fact that the benefits ultimately redound to the lowest tariff states.
Agricultural subsidies also allow America to provide thousands of seasonal job opportunites for undocumented immigrants that might otherwise be lost to places like Guatemala and Honduras.
Heh. Well put, Angus.
 
Written By: MichaelW
URL: http://wdswrld.blogspot.com
Jon, I’ve been talking about this for days. It is big news, and I’m glad you put it here. To put it in a way Q and O fans will appreciate, every anti-globalization leftist on the planet is saying "I told you so", today. We’ve helped confirm what they thought they knew all along,
that "free trade" is a euphemism for selective opening of markets where it will help first-world economies gain oligopoly status for our own industries and squish their budding domestic competition.
And when it’s time to take moves that actually help poor countries compete against the G20 - what a surprise. No takers. Not that the deck isn’t heavily stacked against the L66 even in a genuinely reciprocally free market - but "heavily stacked" isn’t good enough.

The most interesting thing in all of economics are the tensions between free-market economic policies and actually increasing competition.


Off-topic:

Agricultural subsidies also allow America to provide thousands of seasonal job opportunites for undocumented immigrants that might otherwise be lost to places like Guatemala and Honduras.

And, of course, if the job opportunities were available in Guatemala and Honduras, the undocumented immigrants wouldn’t be coming here in the first place. I’m waiting, waiting, waiting for the anti-immigrant movement to stumble upon the fact that our current trade policies are the greatest driver of immigration demand anyone could name. That would be a great left-right coalition, if you had a billion dollars to beat the idea into people’s heads.
 
Written By: glasnost
URL: http://
I couldn’t agree more, Jon. Agricultural subsidies (European as well as American) should be sunsetted, especially considering the gains we could make in multilateral trade negotiations (not to mention world poverty) if we put them on the table.

We’ve taken a number of things in which these countries should have natural competitive advantage and undercut them, all at a cost to the taxpayer.
(Let’s not forget people who are paid not to farm — check out the whole WaPo report for tons of stuff on wasteful agricultural policies)

Highly subsidized American and European crops land in Africa, and they might as well quit the fields — they simply can’t compete (nor can they compete with the UN World Food Program, which is even more highly "subsidized"). And of course, we’d raise Cain if they set up countervailing duties. Hence, the majority of African farming (among others) is relegated to subsistence-level farming, and they can’t handle their own famines the way the rest of the world does (e.g., buying it from a part of the region that hasn’t been affected by the drought). That means even fewer people receiving income or willing to reinvest what income they do have in productive ways (instead keeping it in the mattress for a rainy day), in an already depressed part of the world.

And don’t even get me started on cotton, and the lengths to which we go to keep that sector afloat. Subsidies, import quotas, the works. Clothing could be substantially cheaper.

A few problems, of course: whole communities have grown around farms that wouldn’t exist without taxpayer subsidy, and with that you have a number of people who aren’t trained to do anything else, who have made investments (in land, human capital, etc.) and taken out loans on the assumption that those rents would keep pouring in for years to come. I know a guy who’s about to go to med school, helped in part by his family’s subsidized income. And when people have made plans based on subsidies and other practices that have been in place since time immemorial, that means that ending those subsidies and practices will displace a number of those people.

And since farmers are distributed so much more widely in geographic terms than city workers, that means that another large group of people only have jobs because they can supply those people; like I said, whole communities have grown around them. Whole small towns out in the hinterlands, train and truck freight workers, farm equipment manufacturers and maintenance workers, you get the picture: all of their incomes are based in part on that margin of extra income that keeps those farms afloat.
As such, the ripples from this would affect many other sectors negatively while the former farmers faced the painful adjustment costs — especially since, far more so than for city workers, getting a new job may require moving yourself and your whole family after selling land at far depressed prices. Almost all would lose income, many of them would become unemployed. Such is the cost when you’ve been ritually robbing Peter to pay Paul for generations: Paul makes plans. He’s become dependent.
(Perhaps no better time than now, what with our very low unemployment rate, eh? But it’s a political no-go anyway.)

The bigger political issues: Agricultural companies are powerful — very powerful. There’s a lot of concentrated wealth in those big agricorps.
Then there are the many areas that suck up all that redistributed revenue, which are important for electoral votes, Senate and House seats, and simple local seats... so who’s going to be the party that tells them they can’t received those millions of dollars in subsidies anymore?
Any suggestions about how these guys could be overcome, considering that (for example) cotton has been king far longer than anyone on earth has been alive?
The basic problems arising from the political economy of the situation are pretty well explained here.

So: how do we do something about it? Anyone?
-=-=-=-=-=-=-
glasnost - When you say the leftists are saying "I told you so," are you referring to the anti-globalization leftists or the strictly anti-business leftists? :^P
 
Written By: OrneryWP
URL: http://
Taps fingers....

So, do you think that we should outsource our armored fighting vehicle, ammunition, and other military odds and ends production?

D’ya think that being able to feed ourselves isn’t important?
 
Written By: Mark A. Flacy
URL: http://
Anybody who thinks getting rid of ag. subsidies is bad for a nation’s agri-business should see what New Zealand’s experience is with it. (it’s thriving)
 
Written By: Toddk
URL: http://
I can’t imagine ag subsidies are going away until the people paying for them have had enough. Maybe when everyone’s taxes go up 50% to pay for social security and medicare, ag subsidies will finally get cut. Either that or we have enough politicians willing to fall on their sword on priciple. (hahahahaha!)

 
Written By: Unknown
URL: http://
Real farmers (those who live on the land and make their family living farming), even those whose ’net worth’ may be in the low millions due to the value of the land, don’t like subsidies any better than you do because they don’t really help them that much and they distort the market.

It is easy for huge agri-business to game the system and/or the markets to make profits and those who get paid to grow nothing, like Ted Turner and your odd movie star or seven and the guy who paid one of the biggest, if not the biggest, drug fine in US history (Paul Edward Hindelang), all like the system.

It’s time to end the subsidies. There are plenty of agri-markets waiting to be developed (some are already fairly developed), but they’re stalled due to these idiot subsidies.
 
Written By: JorgXMcKie
URL: http://
Anybody who thinks getting rid of ag. subsidies is bad for a nation’s agri-business should see what New Zealand’s experience is with it. (it’s thriving)
I can’t imagine ag subsidies are going away until the people paying for them have had enough. Maybe when everyone’s taxes go up 50% to pay for social security and medicare, ag subsidies will finally get cut.
This is pretty much what happened here in NZ. We were fully socialist and going broke with a top income tax rate of 66%. The old government was giving away money to stay popular. The new government cut everything (subsidies and taxes included) and it sort of worked, but a lot of special interest groups did get piss*d off.
 
Written By: Unaha-closp
URL: http://
I’m waiting, waiting, waiting for the anti-immigrant movement to stumble upon the fact that our current trade policies are the greatest driver of immigration demand anyone could name.
Many of us have been knowing that for years. But its hard to break the stranglehold of the lobbyists. The Agri industry is one of the most powerful.
I have been doing research for a big article on my site about all the damage done by the agriculture industry. It reaches into nearly every area, prices, subsidies, foreign relations, immigration, and even health. And the effects are all negative.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
And since farmers are distributed so much more widely in geographic terms than city workers, that means that another large group of people only have jobs because they can supply those people; like I said, whole communities have grown around them. Whole small towns out in the hinterlands, train and truck freight workers, farm equipment manufacturers and maintenance workers, you get the picture: all of their incomes are based in part on that margin of extra income that keeps those farms afloat.
As such, the ripples from this would affect many other sectors negatively while the former farmers faced the painful adjustment costs — especially since, far more so than for city workers, getting a new job may require moving yourself and your whole family after selling land at far depressed prices
Well tough shiite, Life sucks. When I was displaced by the collapse of the oil industry in the 1980’s no one in Yankee land gave a flying finger to help out.
Now that the oil industry is back, we get blamed again for high prices. Guess what ? You cannot set policies on how you might hurt a few people. You have to do what you know is sound economically. The rest will work itself out.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
Interesting issue. Good discussion. Since the view expressed by Jon Henke seems to be widely shared, what is the reason that the farm subsidies continue? Is it solely politics?
 
Written By: David Shaughnessy
URL: http://dsthinkingloud.blogspot.com/
Since the view expressed by Jon Henke seems to be widely shared, what is the reason that the farm subsidies continue? Is it solely politics?
It’s a mix of the highly focused vested interest of Agribusiness and the way they can leverage that money and interest into influence. The rest of Americans simply care less than the vested interests. Agribusiness has a specific, sizable reason to keep this going, the rest of us have only very small interest in stopping it. They win.

And they can couch these subsidies in insipid rationalizations like "but we need to be able to feed ourselves!" As if there’s a substantial chance that the rest of the world will initiate a universal embargo on shipping food to the US.
 
Written By: Jon Henke
URL: http://www.QandO.net
It’s a mix of the highly focused vested interest of Agribusiness and the way they can leverage that money and interest into influence. The rest of Americans simply care less than the vested interests. Agribusiness has a specific, sizable reason to keep this going, the rest of us have only very small interest in stopping it. They win.
Very interesting. Perhaps this is instance where a non-partisan coalition might be constructed to enforce majority will against a special interest. An opportunity to set an example in a relatively uncontroversial area. . . . Just thinking out loud.
 
Written By: David Shaughnessy
URL: http://dsthinkingloud.blogspot.com/
It’s a mix of the highly focused vested interest of Agribusiness and the way they can leverage that money and interest into influence. The rest of Americans simply care less than the vested interests. Agribusiness has a specific, sizable reason to keep this going, the rest of us have only very small interest in stopping it. They win.
I believe it’s much more than that.

Industrialism is about, what? 200-300 years old, tops? As recently as WWII about 50% of Americans still worked on a farm (compared to ±1% today). Before that we spent untold millenia as an agricultural species. I’m not going to argue that a protective, romantic sentiment toward agriculture and agricultural producers is in fact a race memory, but it’s so close that it might be. It gives the whole question of national food production a broad, powerful emotional component that doesn’t exist for most other goods and services.

And it is a worldwide phenomenon. It’s the one topic that almost undid the European Union, and it might still yet. Are there any lurkers here reading from Japan? How much does a kilo of rice go for in Tokyo these days? How much is an imported canteloupe? The last prices I saw from around 1990 were astonishing.

The best way that I can think of to beat subsidies politically is straightforward education about what these subsidies do to not just the poor abroad but the poor right here at home. We spend some $40 billion annually to keep food expensive in this country, and of course the effect on the poor is as regressive as anything can be.

IIRC, Milton Friedman did a Free to Choose segment on agriculture back in the seventies. We should use that as a template. It’s 2006, and we need to learn that "food security" is best had through the mechanism of a diverse and open agricultural markets.

yours/
peter.
 
Written By: Peter Jackson
URL: http://www.liberalcapitalist.com

 
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