The War on Products Poor People Buy

Reason interview with economics professor Jagdish Bhagwati – Globalization With a Human Face:

Bhagwati: Instead of pandering to union fear, Obama has got to engage them. You have got to help these doubting Thomases confront their fears. He’s got to say that trade with the poor countries is actually helping, not hurting, you. The unions’ main fear is that unskilled jobs are disappearing. They see these jobs being taken up elsewhere where the labor is cheap. But they can’t hold onto these jobs anyway. What they get in return from trade are cheap products that they need as consumers. So free trade moderates the downward pressure on their real wages.

Big portions of the wages of poor workers go toward low quality textiles, for instance. That is well-established. But if you look at the structure of protectionism, if you go and buy something from Anne Klein that’s going to be expensive, but it carries no tariff at all because these high-end designers compete on variety. Tariffs matter where the competition is on prices. So the low-quality items which poor people buy end up carrying higher tariffs than high-end items that rich people buy.

reason: So free trade’s harm to union workers as producers is minimal, but the harm to them as consumers would be very great if we didn’t have free trade?

Bhagwati: Yes. So what President Obama has to do is basically change the ethos in this country so that it understands that the United States has profited enormously from free trade. Free trade has rescued India and China from poverty, yes. But the U.S. working class has also profited from international trade.

Previously -  The War on Food Poor People Eat