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Consumers' Stake in Free Trade

BACK in August, federal officials held public hearings at Georgia State University in Atlanta on President Bush's proposal to enter into a free trade agreement with Mexico. Those testifying represented business and labor interests. Conspicuously absent was any consumer representation. Yet United States consumers have much to gain from the success of the proposal and much to lose if it fails.Adding Mexico to the Free Trade Area already formed by the US and Canada would create the largest free trade zone in the world in terms of economic size - second only to the European Community in terms of population. Removing trade and investment restrictions may seem to be an obscure issue for the average consumer. But even though US tariff levels are low by world standards, trade restrictions dramatically increase prices and the cost of living in the US. Restrictions in clothing, automobiles, and steel have been estimated to cost US consumers over $1 billion a year in each sector. Even seemingly insignificant trade restrictions can cause substantial price increases. At the hearings nearly a dozen representatives of Florida orange growers and processors pleaded to have their trade barriers remain in place. The US has a history of trade restrictions on frozen concentrated orange juice (FCOJ) that goes back to 1930. These restrictions increase the price of FCOJ to consumers from 35 to 44 percent! The Florida orange growers made the standard claim that Mexican orange growers have "unfair advantages." They do have advantages. It is these comparative advantages, resulting in part from the lower level of economic development in Mexico, that will bring about a decrease in prices to the consumer. Some business and labor groups charge that wages in some sectors are so low that Mexican workers are exploited, but none of these groups explain how Mexican laborers are better off with no jobs because of US trade restrictions than they would be with low-paying jobs made possible by trade with the US. Also cited as an "unfair advantage" is the fact that the Mexican government gives land to orange growers. During the early stages of US development, the government gave land to railroads and to homesteaders. Should we question Mexico's development choices? Furthermore, much of the benefit of such a subsidy passes directly to the final consumer. Why should we object to an action of the Mexican government that benefits US consumers? Finally, free land is available (as is cheap labor) because of the underdevelopment of the Mexican economy, and underdevelopment can hardly be considered an "unfair advantage." US business lobbyists will also argue that trade restrictions are necessary to save jobs in a sector threatened by import competition. There are two problems with this argument. First, higher prices in one sector (caused by trade restrictions) threaten marginally viable jobs in all other sectors. So the "saved" jobs in the protected sector cause jobs to be lost in other sectors. Second, the cost to consumers per job "saved" in the threatened sector is astounding. For example, the cost to US consumers per job saved by trade restraints in FCOJ is approximately $240,000 per job per year. This is a very expensive way to "save" a job that pays less than $20,000 a year. The FCOJ producers' gain from trade restraints is estimated to be $90,000 per job per year. The high cost to consumers per job "saved" is not unique to FCOJ. For canned tuna it is $76,000; for textiles it is $50,000; for apparel it is $39,000; and for automobiles it is $105,000 to $241,000. There may be valid concerns about a free trade agreement with Mexico. Some groups have expressed environmental and work-place safety concerns. The correct response to these concerns is not maintaining trade restrictions but entering into broader economic agreements with Mexico that involve mutual cooperation on these issues. If there is a free trade agreement with Mexico, some businesses will close, and some workers will lose their jobs and need to be retrained for other work. The federal government should take an active and aggressive role in helping workers, businesses, and communities make the transition. Even a large federal trade adjustment assistance program would cost the US consumer/taxpayer much less than maintaining the current trade restrictions. But beware the talk by threatened businessmen of our need to "level the playing field" or of "fair trade." Trade is made "fair" by US consumers being required to pay more for essential goods and services because of trade restrictions. The "playing field is leveled" because US consumers must hoist it up on their shoulders, Titan-like, while the international businesses compete on top.