Free Trade: A Hinderance to Sustainability (CR3)

Free trade is a topic that has come up in discussion relating to many of the articles and subjects that our student directed seminar has discussed. While I acknowledge the benefits of free trade, such as international interdependence lowering the possibility of war between certain countries; I would like to discuss the negative aspects of free trade in relation to environmental sustainability more formally than we have in class. I will discuss how free trade provides an excess of goods at low prices, and how through free trade countries loose the ability to sustain them selves.  This paper will include knowledge from an economics class as well as from our class readings and will support the idea that free trade and environmental sustainability are not compatible.

The basic principle of free trade as presented in UBC Economics 355, Economics of International Trade[1], is that free trade allows each country to specialize in production of the good that they have a comparative advantage in. If a country has comparative advantage in production of a good, it is able to produce that good at a lower opportunity cost (how many of one good can be produced at the cost of another) than any of the country’s trade partners. Once each country is specializing in production of those goods, it then doesn’t produce goods that would be more expensive for it to produce, rather it gets them from other countries. When a sufficient amount of countries adopt this policy, more of all goods are being produced at a lower cost than would be possible without free trade.

The longer free trade dominates policy in a group of countries, the more specialized each country becomes. They develop extensive infrastructure to focus on the production only of the goods for which they have a comparative advantage in. If the goods that the country specializes in are continuously open for technological development, the country’s industry will begin to attract a community of people specifically educated in the development of that good, which in turn speeds up the technological advancement in that production area. During these processes an increasing amount of the countries resources, both human and otherwise, become devoted to the production of goods for export. This means that the country experiences a shift in economy, reducing or completely stopping production of some goods, which are then obtained through importing. [2]

A remarkably clear example of this is the textile industry in Canada. Prior to the introduction of the Canada-US Free Trade Agreement (FTA) in 1989 Canadian-made products satisfied about 70% of domestic demand for textiles and clothing. By 1998 over half of textiles in Canada were imported. The first few years after the introduction of the FTA employment in the textile industry in Canada declined, but then rose again and remained stable until 2004, as the industry became specialized in ‘technical textiles’ for use at home and export.  The production of technical textiles requires extensive technology as well as highly skilled workers.[3] Canada’s economic switch from general production to fulfill domestic demand, to specialized production of technical textiles, only a small number of which are domestically demanded, shows how Canada is now trade reliant rather than self sufficient and must import goods from other places to meet a basic need of society.

In the ten policy proposals of Heram Daly’s article, “From a Failed Growth Economy to a Steady State Economy”, regulating trade is number five. Daly states that, “We cannot integrate with the global economy and at the same time have higher wages, environmental standards, and social safety nets than the rest of the world. “ He goes on to point out that trade should be regulated into being balanced and fair. It is clear that Daly interprets free trade as a tool of a capitalist economy, one that must continually grow to be considered successful.[4] Continued growth is a problem, because in order to occur demand must be created. The creation of demand often occurs artificially when people buy things not because they are in true need of them, but because they can afford them.

(The graph I just can’t be posted here, but there is a website that explains supply and demand in an interactive way:

http://www.bized.co.uk/learn/economics/markets/mechanism/interactive/part2.htm)

In the graph above, an increase in supply is depicted by the supply curve shifting from S1 to S2. As a consequence of this P1 (original price) falls to P2 (price after supply curve shift) and Q1 (original quantity) increases to Q2 (quantity after supply shift).  This graph is a replica of a graph used to explain supply and demand in the first week of an introductory economics class.

In conclusion, free trade creates countries which are import reliant and therefore not self sufficient. In order to get some of the most basic goods, countries pay for the goods to travel from at times half way around the world. Free trade also facilitates the creation of an economic market where the quantity of goods available is more then would otherwise be possible. This allows for an increase in consumerism based on the concept of want rather than need, as people are able to buy more when the prices drop. The increased the necessity for goods to travel around the world together with the promotion of consumerism, lead me to conclude that free trade is not an environmentally sustainable policy.

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[1] Krugman and Obstfeld: International Economics 8e

[2] Ibid.

[3] “Streching or Shrinking? The Textile and Clothing Industries in Canada.” Statistics Canada. (http://www.statcan.gc.ca/pub/11-621-m/11-621-m2005022-eng.htm)

[4] Newell and Paterson – Climate Capitalism (2008)