Globalization and the benefits of trade



about. Unless they can sell us the prod-
ucts that use their most abundant, and
therefore lowest-cost, resource—their
labor—their wages will never rise. And
they will never become good markets
for the products in which we have a
comparative advantage.

Sometimes an industry that has lost its
competitiveness is granted “temporary”
protection from lower-cost imports to
give it time to update its technology or
modernize its facilities. However, one
has great difficulty finding examples of
industries ever willingly giving up this
protection. More often than not, the
assistance is used as a subsidy to keep
producing in the same manner as al-
ways, with no adjustment occurring.
Delaying adjustment in this way usual-
ly makes it more costly later on. This
appears to be the case in many parts of
the U.S. textiles and steel industries.
This is also the situation in some parts
of the agricultural sector, e.g., sugar,
rice, and cotton, which have received
the largest production subsidies and/
or highest import protection.

It is not uncommon for industry leaders
to argue that the cost per American con-
sumer of protecting domestic produc-
tion of a certain good is small. This may
be true for a single product; however,
if protection is provided to one industry,
others will demand it. If a country pro-
vides protection across a broad range
of goods and services, its citizens lose
twice. Their incomes are lower because
the country forgoes potential GDP when
it allocates its resources inefficiently.
And what income they receive has small-
er purchasing power because they have
to pay more for the protected goods
and services that they could have ob-
tained at lower cost.

Trade Adjustment Assistance

Recognizing that the gains of the gainers
exceed the losses of the losers from
trade liberalization, the U.S. Congress
has institutionalized Trade Adjustment
Assistance as a means of compensating
the losers. Compensation to losers from
trade liberalization is granted out of a
sense of equity or fairness to facilitate
adjustment of labor or investment out
of a declining industry. This may involve
retraining workers who lose their jobs
and buying out the undepreciated value
of investments in specialized machinery
and facilities that cannot be used for
other purposes.

Compensation may also be justified if
imports of cheaper goods had not oc-
curred previously because an otherwise
uncompetitive industry had used its polit-
ical connections to secure government
subsidies and protection from imports.
In this case, a buyout or some other form
of compensation may be necessary to
neutralize that industry’s political op-
position, which might prevent trade
liberalization from occurring and block
the rest of a country’s residents from
reaping the benefits of freer trade.

Conclusion

Overall, the world has benefited enor-
mously from globalization. However,
because the adjustment required to at-
tain the benefits of increased global-
ization can be costly to individuals, it is
appropriate that society as a whole, which
stands to benefit, shares in the costs of
those who lose as a result of globalization
through such means as Trade Adjustment
Assistance. The current round of WTO
trade negotiations, the Doha “Develop-
ment” Round, provides an opportunity
to exploit trade liberalization to bid up
wages and reduce poverty in low-income
countries. This would make the world a
safer and more just place, while creating
larger potential markets. I will look at
the implications of globalization for
rural America in an upcoming issue of
this publication.



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