Just like with most things, when creating trade policy, there needs to be a balance between meeting the needs of the consumers and meeting the interests of businesses and their employees. Businesses must be able to produce a product that consumers wish to purchase at a price low enough to incentivize them to make the purchase. Businesses must be able to balance this production at a price that generates an adequate profit margin to pay for labor, materials, and other overhead. Cost of materials is standard for the most part across countries depending on the product, however, most overhead and labor will be cheaper in other producer-oriented countries such as China, offering companies a better chance at success (D’Aveni, 2014). Without considering the cost of transporting products, it would seem reasonable then to assume that it would be cheaper to make a product in China and therefore could be sold at cheaper prices, ultimately benefiting the consumer.
At first glance it would seem like a cheaper price on certain goods, like a television would be advantageous to the American consumer, however, the reality is that it is making us poor. Companies are competing so effectively attempting to create the maximum value for consumers, that the American workers suffer from lower wages or unemployment. Our textbook references a study by Autor in which he researched regions in the United States (U.S.) most exposed to China and found that those most exposed tended to lose more manufacturing jobs as well as receiving higher rates of disability, food stamps, and unemployment insurance (Hill, 2019). In these areas, the increased costs of government assistance amounted to “two-thirds of the gains from trade with China” (Hill, 2019, p.172).
Since 2002, Germany started to shift away from the consumer in the hopes of a more balanced economy. Value-added taxes increased as did the retirement age. Revenue from fossil fuels and manufacturing was invested in research and development and vocational training to support their higher-value-added renewable energy and industrial goods sectors. The German government favored free trade, however, it kept tariffs up on industrial goods from outside the European Union preventing Asian competitors from destabilizing German producers. These policies instilled trust and confidence which encouraged German companies to keep workers employed (D’Aveni, 2014). While tariffs were up, they were still low enough to prevent oligopolies which spawned worldwide competitiveness. Because of this, Germany ended up emerging from the Great Recession “with lower employment and debt than those of other nations” (D’Aveni, 2014, p.2).
In 2018, 48% of respondents to a survey by American Magazine felt that U.S. trade policy should favor workers worldwide and 34% felt that American workers should be prioritized first, followed by consumers. While 72% stated that they tried to purchase American products, 59% felt that there should be more free trade (American Magazine, 2018). Government policy should continue to strike a balancing act by favoring producers through low corporate taxes, import restrictions, easy commercial credit, and low regulation; and favoring consumers with free trade, pro-consumer regulation, easy consumer credit, and low sales taxes (D’Aveni, 2014).
American Magazine. (2018, April 20). Whose interests should be the first priority for U.S. trade policy? Retrieved from https://www.americamagazine.org/politics-society/2018/04/20/whose-interests-should-be-first-priority-us-trade-policy
D’Aveni, R. A. (2014, August 1). When Consumers Win, Who Loses? Retrieved from https://hbr.org/2012/09/when-consumers-win-who-loses
Hill, C. W. (2019). International Business: Competing in the global marketplace. New York, NY: McGraw Hill Education.