How Fair Trade Wage-Leveling Tariffs Work
by Vince Page
The lengthiest debates the Democratic presidential candidates have had to date are on the subject of Fair Trade. Details have yet to emerge, largely due to the sound-byte style of modern campaigns. In this article, good and bad Fair Trade policies are investigated, we dig deep into the workings of a Fair Trade Wage-Leveling Tariff, and we explain why there is only a limited time in which to act.
Douglas Irwin Professor of Economics at Dartmouth College wrote an article in the January 28th, 2004 Wall Street Journal entitled, "Outsourcing is Good for America" in which he intoned the same, old, tired dogma which states that lower wage rates in foreign countries help Americans by lowering the cost of goods and services. But do they?
First of all, it is a given that an American must lose their job before these low-cost goods can replace reasonably priced goods made in America. A supplanting of American labor to foreign lands is, after all, the basis of outsourcing. Mr. Irwin insists that a flexible, well educated workforce will always find employment, but at what price? Does the next job obtained by the American worker in question pay more or less than the previous job? If the worker is to compete in an environment where both blue and white collar jobs are being outsourced, it is axiomatic that his next job will pay less, at least in real terms.
This does some very damaging things to our economy and to our government. First, the government no longer collects taxes on the job that has been exported overseas. Secondly, since there is always competition in the workplace, the lower wage obtained from the secondary job reduces government revenue further. This can manifest itself by one American worker replacing another, or by industry-wide wage freezes or rollbacks. All are common and familiar events in the United States. On the other hand, the economy of Communist China grew at a rate exceeding 8% last year.
After all this, the American worker now making less money is treated to goods from Communist China which cost less than those made in America, but is he ahead of the game? Of course not! His cost of living in America is many times that of a Chinese laborer. The fact that he can buy a sweater for $15 at Wal-Mart as opposed to a $20 American-made sweater at J.C. Penney is no big help. He still has a $1000 monthly house note to meet. The guy in China lives in a mud-brick hut. If this cycle continues ad infinitum the guy in America will eventually live in a mud-brick hut too! This is the fallacy of outsourcing for the sake of lower prices.
As you may have guessed, there is a moral as well as an economic issue to consider here. When American companies pay laborers the prevailing wage in Communist China, they are saying quite emphatically, "We want you to live in that mud-brick hut forever." This is an untenable and an unethical position for any company to take, even if it is taken implicitly rather than explicitly. Any time American companies utilize foreign laborers, the intention should be to lift them up to our standard of living, not to lower the American worker to a foreign standard of living. But how best to do this?
As this piece is written, there are ongoing efforts in the Congress of the United States to eliminate any government outsourcing to India. These efforts will fail, just as they would at any Fortune 500 stockholder meeting. There are no laws which prevent our government or American companies from shopping the world for peasant labor rates, but there is an equitable solution to the problem which can also be quite lucrative for the federal government. The solution is a wage-leveling Fair Trade tariff.
It is important to note here that, whatever we do, we only have a limited time in which to do it. Within 20 years, Communist China will rival the U.S. economically and a common European Union will have surpassed our economic output many times over. We only have the next 20 years to determine if we will continue down the present path of shopping the world for peasant labor rates that admittedly reduce prices, but will just as surely lower American wages and government revenues. Or, do we use our time-limited bully pulpit to lift up the world by imposing wage-leveling Fair Trade tariffs, thereby granting a living wage to those less fortunate, eliminating wage depression and loss of tax revenue in this country, and establishing a moral basis for wage determination that will benefit Americans when America is no longer the dominant world economic power? In 20 years, no one will care what we think. The morals of Communist China will dictate.
Now to the specifics. How does a wage-leveling Fair Trade tariff work? To make the example as simple as possible, let us suppose that all of the components of the new VW Beetle are made in Germany which has a comparable wage scale to that of America and that 100 man-hours are involved in assembling the automobile in Mexico. The assembly line workers in Mexico are paid $3.75 per hour ($30 per day) in wages and benefits whereas the gross wages of their Detroit counterparts are $30 per hour. The difference of $26.25 per hour times the 100 man-hours required to assemble the car means that a tariff of $2,625 should be applied to every new VW Beetle entering this country from Mexico.
If the Mexican auto assembly plant wants to get rid of this tariff, they have complete control of the situation and can do so at any time by establishing a parity of wages with their American counterparts. The problem is solved as soon as Mexican businessmen want it to be, and in the interim our government collects the tariff income. Moreover, American workers do not sacrifice one cent of their much-needed paychecks to establish this parity, and they do not pay higher prices than they would for American goods. The American standard of living is preserved and the Mexican standard of living is enhanced. The wage-leveling tariff is a win-win for workers on both sides of the border. The only reason for outsourcing in this instance is if foreign worker productivity is greater than in America. This is just as it should be. American workers have always been willing to compete with anyone where productivity is concerned.
The first and only objection to this policy is the effect it would have on the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and the possible effect on the Free Trade Area of the Americas (FTAA), now in negotiation. Let me tell you a little secret. Both of these agreements and the WTO would crumble without U.S. support. We can negotiate a wage-leveling Fair Trade tariff into all of these agreements if we have leaders (instead of followers) who will make it happen. But this is a limited-time offer. We only have the next 20 years to get the job done, and our bargaining position will weaken steadily during that time. The time, therefore, for moralistic action is now. The family, the government and the country you help may be your own.
Vince Page is the Communications Director for the Texas State Constitution Party and is a District Deputy for the Texas State Knights of Columbus. He can be e-mailed at firstname.lastname@example.org
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