Acknowledging Inequality in Trade Negotiations

The U.S. flag flies over a container ship unloading it's cargo from Asia, at the Port of Long Beach, Calif., on Aug. 1, 2019. Mark Ralston/AFP via Getty Images

Commentary

Inequality is all around us. It is a ubiquitous fact of life, whether we are comparing individuals or societies. Nobody “planned” inequality. No, let me modify that statement. It’s true that individual and social inequality occur naturally; however, tyrannical political beliefs and ideologies can add an artificial political inequality that is created by using force against one’s fellow human beings.

Individuals who embrace the ideology of egalitarianism apparently think that nature is inherently unfair for having produced various types of inequality. Individuals differ in intellectual capacity (few Einsteins), physical attributes (few Aaron Judges), creativity (few Paul McCartneys), entrepreneurial genius (few Elon Musks), aptitudes (not everyone can fix plumbing, program computers, or manage a classroom of children) and attitudes (focused and driven, or easy-going and unambitious), etc.

These marked differences inevitably lead to economic inequality, a fact that drives egalitarians crazy. They believe that the natural order that leads to economic inequality is an inherent defective of creation, and that it is up to the egalitarians to “fix” what they perceive as this fundamental defect by using government power to rearrange the existing situation.

Other people (I am thinking in particular of some free-market economists here) embrace and applaud our natural differences and inequality. They say that our differences play a major factor in the development of the division of labor, in which individuals tend to specialize in areas where they see the most potential for satisfactory achievement and personal success.

Whether you are favorably or unfavorably disposed toward individual inequality, at the very least we all should acknowledge that inequality exists. Where we differ is what, if anything, anybody—whether through private initiatives or government programs—should do about inequality. Rather than debate egalitarianism here (I have offered my two cents worth in this column before), the recent hullaballoo about tariffs sometimes has shown an unfortunate blindness to the realities of societal differences, which can be as pronounced as individual differences. We cannot devise an intelligent trade policy without considering the fundamental differences that impact production in various parts of the world.

One example of this blind spot is when our country blames trade deficits on foreign countries not having as strict and costly environmental regulations as American companies have to comply with. While it is undoubtedly true that the regulatory burden is lighter in other countries than it is here in the States (where, according to the Competitive Enterprise Institute, the annual cost of government regulations exceeds $2 trillion—more than the GDP of most of the countries on Earth) there is nothing sinister or “unfair” about other countries having less costly regulatory regimes.

Why do you think Brazil or Malaysia, for example, don’t impose as costly a set of environmental regulations burden on their businesses as Uncle Sam does on American businesses? (Please note: I am not defending or justifying any of the very real trade barriers that foreign countries deliberately employ against the United States.) Is that evidence of some devious plot to enable their producers to gain a cost advantage against American competitors? No, the reason is much simpler than that: Those countries are not as wealthy as the United States, thus they cannot afford as expensive a set of regulations as we have here.

Poorer countries have not yet achieved sufficient economic growth to be able to pay for environmental regulations as stringent as American enterprises must obey. Look at our own country in the 1960s. Air and water pollution were severe problems. Why were American producers allowed to inflict so much pollution on the environment? It was because we had other, more pressing economic priorities. Thank goodness, Americans got to the point where a majority strongly concluded, “Enough! Let’s do something about all this pollution.” Consequently, responding to popular pressure, government regulation greatly reduced pollution. In technical terms, we had arrived at the point on the Kuznets curve where pollution starts to decrease as prosperity continues to increase. That is, we had become wealthy enough so that we could pay billions of dollars for a cleaner environment and still be able to afford cars, air conditioners, vacations, and a wide range of amenities.

Do you think the people in poorer countries prefer to live with pollution? I don’t. Rather, I am confident that they will vote for less pollution just as soon as they feel they can afford it. (Note: This is the expected path in democratic countries. Dictatorships such as the Chinese Communist Party are not responsive to the popular will, which is why communist countries tend to be the most polluted countries.) Until poorer countries become richer, is it just for us to penalize them by imposing protective tariffs against them simply because they cannot afford as much regulation as we have?

There is an added danger of the White House threatening to impose punitive tariffs on countries for having less stringent environmental regulations than we do. President Trump is having a hard enough time convincing Congress to adopt his economic agenda. Does he really think he can dictate what domestic policies our trading partners should have?

We need to recognize and respect the sovereignty of those nations. If anything, such demands will anger foreign citizens, just as he already has angered Canadian citizens (among others) by presuming to tell them what they should do. The result will be that foreign countries will circle the wagons against American attempts to dictate policies to them. Only if the true agenda is to scuttle trade with foreign countries would it make sense to tell them what domestic regulations they should have. If, on the other hand, we truly want to facilitate trade, then we should refrain from making such demands.

Finally, here is an outside-the-box thought: Maybe instead of asking foreign countries to ramp up regulation, we should consider reducing regulations in our own country to make American producers more competitive in international markets. When it comes to pollution, usually it is just the last few percentage points of pollution eliminated where exorbitant marginal costs occur. If it costs twice as much to eliminate 97 percent of a pollutant as it does to eliminate 94 percent, then maybe settling for 94 percent is a change worth considering. I know that such a suggestion is sacrilegious to hard-core greens, but let us be mindful of the old adage about not letting the perfect be the enemy of the good (or the excellent).

Perhaps it is our own policies that need to be modified. The fact is that we have more control over our own government than we do over the governments of foreign countries. Let’s accept the inequality of nations and fix what we can here at home.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.