“Fair Trade” is the Myth that Everyone Seems to Believe in

“Fair trade” is a myth. The whole idea is absolutely bananas. Why, do you ask? Well… because of bananas.

Fair trade is the idea that a country will benefit more by levying trade tariffs and other trade barriers against other nations in order to reduce competition and keep jobs located within your own nation from moving overseas. It sounds like a fantastic idea if you choose to believe fantastic-sounding ideas at face value, but in reality, it’s a horrendous idea.

Let’s use that banana example. Here in Atlanta, the most widely-eaten brand of banana seems to be Chiquita. Chiquita’s bananas are not grown in the United States; they are grown in Mexico, Central America, and Ecuador. However, let’s imagine that the American apple industry starts losing revenue, so the US government decides to put a tariff on banana imports in hopes that more people will switch their fruit consumption from bananas to apples. Now you have to pay 50% more per banana if you want one, and if you don’t want to pay that money, then you either buy the apples or go find yourself something else to eat. Sure, the apple industry is protected and maybe apple sales increase a little bit and one employee per apple orchard has his job saved, but the cost of this small victory is a massive increase in banana cost which harms both American consumers and Latin Americans who work on banana plantations.

Not a good example? Well, let’s talk about cars, then. The auto industry was one of the main recipients of criticism from Donald Trump during the US presidential election in 2016. What was the problem? He was critical of American auto manufacturers locating their production facilities across the border in Mexico. Is that fair criticism? Let’s think about why a business would locate their production facility across the border. If Ford moves a factory from the Midwest to Mexico, they’re doing it because that’s the best way for them to maximize their profits and produce cars cheaply. The cheaper a company can produce its goods, the cheaper the goods will be for consumers back in the US to buy those goods. Also, the company’s competitors will have to reduce their prices to compete with the cheap, foreign-made goods. When companies like Ford or General Motors relocate factories to Mexico, they are actually benefiting the economy as a whole by reducing the prices of all the goods in their industry (in this case, automotives).

The so-called “fair trade” agreements which have become popular ideas from both sides of American politics appeal to voters because we feel for those folks in rural towns who lose their jobs when the factories move out. We are angered when we see pictures of what we consider to be poor working conditions in American-owned factories in other countries. What we don’t consider is that Americans as a whole benefit immensely more from the cheaper goods than we do from having a few hundred more jobs. The wealth accrued will allow for Americans to have more spending money, increase investment, and cause for jobs to increase within the country over time in other industries. As for the workers in Mexico and other countries who are producing goods for American companies, are they really being hurt by the American factories in their towns? Not at all! They love it when American factories open up. The wages which seem extremely low by American standards are actually higher (in some cases, substantially higher) than the local wages in other countries, and the work in factories is oftentimes preferable to work on a farm or no work at all.

Americans need to consider the big picture when thinking about whether or not we really need “fair trade.” Free trade agreements like NAFTA have helped Americans save money on consumer goods while at the same time helping lift tens of thousands of Mexicans out of poverty as they earn livable wages in American or Canadian-owned factories. Free trade offers the best long-term benefits for all parties involved.

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