Free Trade v. Fair Trade: Why Ethical Steel Trade is Impossible on a Global Scale
As the global industry increasingly focuses on mass production and consumption, states desperately try to keep up. Industry breaks up production and distribution into different steps; these steps are often performed by a variety of states in what is called a global value chain (GVC). In GVCs, former Western imperial states utilize cheap labor and production in developing states.
Anti–globalizers point out GVCs as exploitative; however, numerous economists, like Martin Wolf, recognize that GVCs are inevitable and necessary means of integrating developing states into the global economy—a step necessary for their survival in the contemporary capitalist system. Wolf expresses in Incesed about Inequality that “the notion that international economic integration necessarily makes the rich richer and the poor poorer is nonsense.” Further, it is essential for states to integrate into this system if they wish to grow economically, as global value chains allow for a rising share of international trade, global GDP, and employment.
Professor of Sociology and Director of the Global Value Chains Center at Duke University, Gereffi Fernandez explains in Global Value Chain Analysis how “for many countries, especially low–income countries, the ability to effectively insert themselves into GVCs is a vital condition for their development.” Fernandez also shared how it’s not only a question of participating in the global economy, but doing so in the right way, such that a developing state uses access to GVCs to capture gains and reduce unemployment and poverty. If Fernandez’s wisdom holds true, how do developing states become drivers of GVCs? The answer to this question is simple: trade.
Free trade allows countries to rapidly transform their economies and raise their living standards. Jagdish Bhagwati, an Indian-American economist, in his work Poverty and Reforms: Friends or Foes? argued that unrestricted trade between nations would improve quality of life while preserving the environment. Bhagwati recognized that trade is the best way for states to integrate into the global economy. For example, the increase of free trade in China’s markets allowed for it to become a driver of GVCs and successfully integrate into the global economy; the IZA Institute of Labor Economics shared how in China, the “increasing participation in the global trade helps China reap the static and dynamic benefits, stimulating rapid national economic growth.”
It is trade that transformed China into a global economic power. However, China’s start to international trading presents an ethical dilemma, in which the U.S. used opium to open Chinese markets. According to the U.S. Department of State in the Office of the Historian, “Following the First Opium War in the 1840s, the Western powers concluded a series of treaties with China in an effort to open its lucrative markets to Western trade.” Further, western powers encouraged Chinese addiction to opium in order to meet trade interests. Although this method allowed for the development of China’s influential power in the contemporary global economy, the ethics of this tactic remain wrong and ill-conscious. Thus, we must ask– what is ethical free trade?
When it comes to the question of poverty and economic development, different backgrounds shape the perspectives of those who argue for or against free trade as a solution. However, even ideological opponents Martin Wolf and Robert Hunter Wade—who do not agree on the effects of globalization on inequality—share a desire to find the morally right answer to solving poverty. Thus, our focus is not a debate of whether or not free trade is the solution, but rather it is a question of how trade policies can be ethically and efficiently shaped.
This brings us back to my latest question—what is ethical free trade? First, let me define the goal of what we would consider ethical free trade. Ethical free trade is a trade agreement between two or more countries that protects workers and fair labor while preventing global powers from inhibiting the economic growth of developing states. An idea that meets part of this goal is fair trade. Fair trade can be described as:
“A movement that values the freedom and dignity of individuals who make, grow, and supply products to consumers over the cost and convenience of acquiring products in the global marketplace. Fair trade seeks to help workers and producers—specifically in developing countries—achieve better trading and working conditions”
The World Trade Organization declared that fair trade began in 1958 when Ten Thousand Villages began buying materials from poor, southern communities in Puerto Rico and sell these finished goods in the U.S. This event sparked a movement that would forever change the way goods are labeled and marketed, with public support growing for the idea of fair trade branded coffee, groceries, and other materials. However, even with the development of fair trade, arguably unethical free trade policies persist. Let us look at the example of steel production in the U.S. and China.
Steel became a major product in global commerce in the 19th century; later in the 20th century, steel production also became a defense priority as world wars raged on. Countries like the U.S. and China looked to mass-produce steel; however, the mass production of steel in China during Mao Zedong’s Great Leap Forward led to severe environmental and health effects. According to the Association of Asian Studies, farmers created ‘backyard steel’ in which they produced cheap, poor-quality steel in their backyard furnaces, causing an estimated 10 percent of China’s forests to burn down. Wood became so increasingly scarce that “peasants resorted to burning their doors, furniture, and even raiding cemeteries for coffins.”
Farmers, now with their time divided between steel production and farming, could not keep up with Zedong’s collection plans. An estimated thirty million people in China perished from starvation. Today, China produces over 50 percent of the world’s crude steel and engages with the U.S. in an ever-changing dynamic over steel trade policies. Both the U.S. and China still cause long-lasting effects on the environment with steel production and exploit laborers.
Lewis Leibowitz, a well-known international trade attorney, shared how “steel and aluminum currently emit large amounts of carbon based on production processes. Some countries, including the United States, are considering a carbon border tax to penalize dirtier producers. But, as some have pointed out, the US has dirty sectors too.”
Although the U.S. advocates for fair trade, it does not always follow fair trade principles when its economic interests– like steel production for military building—are at stake. Thus, it is impractical to debate free trade versus fair trade, as fair trade—regardless of its ideal nature and promising ethics—is followed until it does not suit states’ economic needs.
Michael J. Hiscox, representative from Harvard University at the conference on Europe and the Management of Globalization at Princeton University, explained how “higher labor standards make production in developing nations more costly, multinational firms are likely to invest less in those locations, slowing the pace of economic growth and the spread of technology.” Moreover, not only are states less likely to follow fair trade policies when their economic interests are at stake, but so are multinational corporations.
In 2016, China claimed the U.S. steel probe violated the standards upheld by fair trade by moving towards protectionist policies, as shared by ChinaDaily. However, the U.S., as explained by the Wall Street Journal, also is upset from a different perspective. U.S. producers and firms complained that China was “selling products below production cost to improperly gain market share” and thus creating illegal subsidies. Which state is right—the proponent of fair trade or free trade policies? My previous claim stands: fair trade is followed until upholding it threatens states’ economic interests, which is exemplified by the U.S. returning to protectionist policies in steel importation above all else.
With the increasing concern about the impact of globalization in developing nations, scholars like those discussed in this essay debate solutions to poverty and inequality. Free trade is widely seen as a way in which developing states can successfully integrate into the global economy, though downsides exist. Yet, the positives of free trade outweigh the negatives; policy-making institutions can look towards developing trade policies based on the principles of fair trade to protect developing nations from the potentially harmful effects of globalization. However, these fair trade policies will only exist in areas where global powers allow them to. Fair trade shall never take over the global stage nor reach the effectiveness or efficiency of contemporary free trade.