Uneven Trade

Subsidies, quotas, and tariffs steal from the poor and give to the rich.


The anti-globalization activists who recently railed against the World Bank and the International Monetary Fund in Washington see themselves as champions of the poor and downtrodden against the rich and powerful. In their minds, this commitment makes them natural enemies of the free market.

Yet anyone who considers the ways in which the rich and powerful use government to get what they want will understand that fighting for the poor and downtrodden requires defending the free market. Consider the subsidies and trade barriers that benefit affluent Americans and Europeans at the expense of producers in developing countries who are struggling to eke out a living.

Stanley Fischer, a former IMF official, rightly calls the situation "scandalous." Nicholas Stern, the World Bank's chief economist, says, "It is hypocrisy to encourage poor countries to open their markets while imposing protectionist measures that cater to powerful special interests."

The protesters who march under the banner of the Anti-Capitalist Convergence may not be inclined to hear this message when it comes from representatives of organizations they see as irredeemably evil. But perhaps they'll listen to Oxfam International, a group with impeccable "progressive" credentials that is "dedicated to fighting poverty and related injustice around the world."

In a new report, Oxfam shows how the injustice of U.S. cotton subsidies contributes to poverty. "Cotton subsidies in the U.S.," it argues, "have been the single biggest force driving down world prices."

That's because the government's direct payments, cheap loans, and other forms of assistance enable U.S. farmers to sell cotton for less than it costs to produce. "In an economic arrangement bizarrely reminiscent of Soviet state planning principles," Oxfam says, "the value of subsidies provided by American taxpayers to the cotton barons of Texas and elsewhere in 2001 exceeded the market value of output by around 30 per cent."

This absurd arrangement victimizes not only U.S. taxpayers but also struggling producers in countries such as Burkina Faso, Mali, Benin, and Brazil (which recently filed a complaint against U.S. cotton subsidies with the World Trade Organization). Farmers in Burkina Faso can produce cotton at one-third of the American cost, but that competitive advantage is eroded by the subsidies.

Oxfam estimates that Burkina Faso lost 1 percent of GDP in 2001-02 because of cotton subsidies; for Mali and Benin, the losses were 1.7 percent and 1.4 percent, respectively. "The economic losses inflicted by the U.S. cotton subsidy program far outweigh the benefits of [American] aid," Oxfam notes. In effect, the U.S. government is robbing poor farmers, then deigning to give some of their money back under the guise of charity.

Cotton is just one of many markets where U.S. and European governments intervene to give domestic producers an unfair advantage. In addition to agricultural subsidies, which amount to more than $12 billion a year in the United States, producers in poor countries face tariffs and quotas that make it difficult, if not impossible, for them to compete.

In a report released earlier this year, Oxfam estimates that the combined burden of trade restrictions on developing countries is something like $100 billion a year, "inflicting enormous suffering on the world's poor." To put that loss in perspective, it's twice what these countries receive in foreign aid.

Oxfam notes that lifting trade restrictions could have a substantial impact even if it led to only a modest increase in exports. "If developing countries increased their share of world exports by just five percent," it estimates, "this would generate [$350 billion]—seven times as much as they receive in aid."

According to Oxfam's calculations, a 1 percent increase in export share would reduce poverty by about 12 percent. "The problem is not that international trade is inherently opposed to the interests of the poor," Oxfam observes, "but that the rules that govern it are rigged in favour of the rich."

American cotton farmers, textile manufacturers, and other producers who rely on subsidies or trade barriers are stealing twice: once from taxpayers or consumers (who have to pay higher prices because of tariffs and quotas) and once from low-cost competitors in countries where losing market share can mean going hungry. They are aided and abetted in this crime by President Bush and every member of Congress who helps shield them from competition.

The next time you're moved by TV images of starving children in poor countries, ponder the role your government may have played in taking food from their mouths.