UNIONISM AND TRADE BARRIERS



[Question]

Unions in developed countries advocate trade barriers and often oppose imports from low-wage countries to protect jobs from what they characterize as "unfair' import competition. Is such competition truly "unfair"? Is this argument in the best interest of (i) the union, (ii) the people they represent, and/or (iii) the country as a whole?

[Answer]

Trade unions in developed countries have been noted to be on the decline in recent years. Once very strong and powerful, it influenced many aspects of organized labour engagements such as wages, working conditions and government laws and policies.

One of those sympathetic calls by the trade unions is for the government to introduce trade barriers to imports. The unions argue that this will help domestic infant industries to grow, reduce unemployment and maintain acceptable prices of goods that pay the workers good wages (Tachibanaki and Tomohiko, 2000, pp. 1-3).

However, the theory of comparative advantage suggests that a country should specialize in producing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries.

Furthermore, the theory suggests that opening a country for free trade stimulates economic growth, which creates dynamic gains from trade (Porter, Sauve and Subramanian, 2001, p. 101).

The Organization for Economic Cooperation and Economic Development (OECD) agrees stating that the choice to increase liberalization of international markets in the form of scrapping trade tariffs including a 1% reduction in hard goods has the potential to generate up to $170 billion dollars a year in global welfare (Love and Lattimore, 2009, p. 56).

Therefore, it would follow that if low-wage countries can make certain products more efficiently than high wage countries, the low-wage countries should produce and export those products.

While barriers to trade may protect workers and companies, these approaches are a short-term fix at best. Moreover, by protecting industries, the government is not encouraging companies to become more efficient.

Instead, the government will be promoting inefficiency which inadvertently does affect the country as a whole. Consumers lose out because of facing higher prices and less choice coupled with firms incurring heavier costs (Love and Lattimore, 2009, pp. 70-2).

Additionally, scholars have moved a step further to argue that bilateral and multilateral agreements between countries can yield even more than what the theory of competitive advantage offers since the theory is generally considered to be applicable in a perfect competition and fixed technology scenario which is generally seen to be unrealistic(Porter, Sauve and Subramanian, 2001, p. 101).

Finally, it can be opined that imposition of trade barriers is not a sustainable strategy in efficiently managing productivity, improving global welfare, providing greater choices or creating more innovations.

If world trade and global standard of living is to be improved, trade barriers in all its forms will have to be reduced to near zero, hence not an unfair import competition.

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References

Love, P. and Lattimore, R. (2009) OECD Insights: international trade: free, fair and open? Ebrary [Online]. Available at: http//site.ebrary.com (Accessed 29 September 2011).

Porter, R.B., Sauve, P and Subramanian, A. (2001) Efficiency, equity, & legitimacy: the multilateral trading system in the millennium. Ebrary[Online]. Available at: http://site.ebrary.com (Accessed 30 September 2011).

Tachibanaki, T. and Tomohiko, N. (2000) Economic effect of trade unions in Japan. Ebrary [Online]. Available at: http//site.ebrary.com (Accessed 30 September 2011).



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