There's Only So Much That Foreign Trade Can Do
Post Sunday, June 2, 2002
By Alan Tonelson
leaders view trade as a key instrument in the global war on terrorism.
By opening U.S.
markets wider to Third World products, they hope
to alleviate poverty abroad and thus turn destitute people away from
terrorism and violence. Trade policy as anti-terror weapon is an understandably
appealing idea. It doesn't put American soldiers in harm's way. It is
nonviolent, market- friendly and holds the promise of "draining
the swamp" where terrorists are assumed to thrive. And it doesn't
require a line in the federal budget.
If only it worked.
Contrary to the view of globalization supporters and
even some critics, trade with the United States does not automatically
provide Third World workers with the keys to wealth and happiness. In
a recent survey, the Reston-based consulting firm Werner International
Inc. has compiled nearly a decade's worth of hard data on actual wages
paid to workers in an industry that is seen as crucial to Third World
hopes for industrialization -- apparel. Perhaps no other industry has
profited more from exporting to the United States. And yet the figures
show that there has been almost uniform wage meltdown in the apparel
industry in the Third World.
Take Pakistan, a front-line combatant in the anti-terror
campaign that has complained bitterly about supposedly miserly U.S.
trade breaks. Yet from 1990 to 2001, Pakistan's annual apparel exports
to the United States rose nearly 400
percent, to more than $1.5 billion. Nonetheless, between 1990 and 1998,
the period covered by the Werner study, nominal wages for Pakistani
apparel workers stayed absolutely flat, at 24 cents per hour. Because
inflation in Pakistan totaled 137 percent from 1990 to 1998, the wages
of apparel workers fell way behind the cost of living.
NATO member Turkey is clamoring for trade breaks, too,
as a reward for buttressing U.S. strategy in the Middle East and Central
Asia.Turkey is already a significant apparel exporter to the United
States, with shipments rising 168 percent between 1990 and 1998, and
growing even faster through 2001. Yet from 1990 to '98, while Turkish
apparel wages increased by 36.3 percent, the country was gripped by
near-hyperinflation that saw living costs soar by more than 1,800 percent.
A similar pattern holds in countries such as the Philippines, Egypt
and Peru. Wage trends for apparel workers are grim, even allowing for
the dollar's appreciation against many local currencies in the developing
world. In some countries, the pattern extends far beyond the apparel
industry.A 1999 report from the Harvard Institute of International Development
and the World Economic Forum revealed falling real wages, in local currency,
across all sectors of the economy in China, Indonesia and the Philippines
between 1990 and 1997. This backsliding occurred well before the region's
All of this contradicts the prevailing theory of the
moment. "America's trade leadership" can help provide answers
for Third World allies "who ask for economic hope to counter internal
threats to our common values," U.S. Trade Representative Robert
Zoellickwrote a week after Sept. 11. The virtues of trade for developing
countries have also been endorsed by the World Trade Organization, the
World Bank, Oxfam International and a U.N. anti-poverty summit.
But in the real world, the answers are anything but
clear-cut. In theory, the solution to developing countries' problems
might be to send yet more apparel to the United States. But the experience,
whether from Pakistan, from Turkey or from Mexico, is not encouraging.
Mexico is rapidly becoming America's largest source of apparel imports
-- $9 billion worth in 2001. Yet Mexican apparel wages have risen less
than one-seventh as fast as that nation's living costs.
Critics of today's trade policies and even supporters
who acknowledge the wage problem offer several plausible explanations,
ranging from low productivity rates in developing countries to a lack
of worker rights. Yet the reasons are more fundamental.
First, greater trade cannot be even a near-panacea
for global poverty because this condition has many other roots. None
is more central than bad and often crooked governance, which prevents
scores of developing countries from organizing themselveswell enough
to exploit trade opportunities when they are offered. Second, the developing
world literally is drowning in labor. The economic liberalization wave
that swept major Third World countries, starting with China's reform
program in the late 1970s, has made an unprecedented number of workers
available to international businesses. In particular, the Asian and
Latin American regions that have opened economically feature not only
huge, rapidly growing populations and workforces, but towering rates
of unemployment -- an estimated 20 percent in China alone. Sub-Saharan
Africa and low-wage East European countries such as Ukraine are waiting
in the wings.
This worldwide labor glut depresses the value of workers
the way the oversupply of any product depresses the price of that product.
These pressures are especially powerful in labor-intensive industries
such as apparel, where international corporations seldom own factories
and instead often shop from country to country for the lowest wages.
Third, the developing world's massive though still
incomplete economic opening has greatly multiplied the number of countries
pursuing export- led growth strategies. During the Cold War, U.S. trade
breaks helped South Korea and Taiwan partly because those nations had
the market for Third World manufacturing exports pretty much to themselves
(and partly because they had strong central governments that instituted
sound domestic policies).
Today, such smallish Asian export tigers are competing
for shares of the U.S. apparel markets with neighboring population giants
such as China, India and Indonesia, along with Mexico, the Caribbean
Basin, Central America and sub-Saharan Africa. These countries continuously
undercut each other; thus, most new U.S. trade agreements with Third
World regions produce complaints from other regions.
In part, that's because the U.S. market is already
well-saturated with imports. Imports currently make up at least 75 percent
of the U.S. apparel market, 95 percent of the footwear market, and 95
percent of the market for computers, other office machines and their
parts. Even those unworried about record and mounting U.S. trade deficits
have to ask themselves: How much more export growth can take place in
In 1999, despite the surge of exports to the United
States, 1.3 billion people still lived below the meager global poverty
line of $1 per day in income, and nearly 2 billion others made less
than $2 per day. Joblessness was still endemic throughout the developing
world. Despite the fact that increased trade hasn't yet improved the
plight of Third World workers, many remain enamored of trade as an anti-terror
weapon. They might do better to turn their attention from the United
States to press Europeans and the Japanese to start importing much more
from developing countries. Although the globe's lone economic superpower
will always be a lightning rod for economic grievances, the other industrialized
countries have clearly erected the biggest trade barriers to Third World
According to the Organization for Economic Cooperation
and Development, the club of industrialized democracies, although the
U.S. economy is twice as big as Japan's, it imports four times more
in non-oil goods from 17 major Third World countries than does Japan.
In addition, although the U.S. economy is 50 percent larger than the
output of the European Union's four biggest countries (Germany, France,
Italy, and the United Kingdom), it imports twice as many goods as they
do from those 17 countries.
A 2001 International Monetary Fund (IMF) study concluded
that stronger growth in the United States is not the major reason for
the disparity. The IMF found that U.S. markets are so open to Third
World imports that every 1 percent of American economic growth is associated
with a 1 percent increase in Third World growth. By contrast, European
and Japanese markets are so closed that even when they do grow, this
growth has no "statistically significant effect" on Third
Unfortunately, the Europeans and Japanese have shown
little interest in lowering their barriers. Indeed, Washington may be
worsening matters by hinting that Japan should let the yen slide and
try to export its way out of recession. The result can only make Japan
even more closed to Third World goods.
Absent more burden-sharing, the United
States simply will need to bring some
order and strategy to its Third World trade policy
by setting priorities. If President Bush wants to reward allies or lure
fence- sitters in the anti-terror campaign, the kind of practically
indiscriminate market-opening he has favored thus far cannot continue.
Further, the president's anti-terrorism priorities
must be reconciled with other foreign policy considerations that have
partly driven recent U.S. trade policy, such as stemming the flow of
drugs and immigrants from Mexico and other hemispheric neighbors, engaging
with China and meeting what the White House sees as humanitarian obligations
toward sub-Saharan Africa. If every one of these aims is a priority,
then none is a priority. Finally, the president will need to preserve
his international legal authority to set priorities in Third
World apparel trade, which will mean confronting an international
agreement to eliminate apparel trade quotas by the year 2005. If the
president fails, much world apparel production is expected to shift
Above all, the administration must recognize that,
for the foreseeable future, American security cannot responsibly be
pinned on seeking millennial change in the developing world. Trade is
not the only economic weapon. Investment and aid can also help. But
even if industrialized nations are more generous, enormous numbers of
people around the world will remain mired in desperate poverty for decades
to come. The swamp that allegedly breeds and harbors terrorism, in other
words, will be drained agonizingly slowly at best.
Alan Tonelson, a research fellow at the U.S. Business
and Industry Council Educational Foundation, is the author of "The
Race to the Bottom" (Westview Press). Kirk Raymond, a foundation
research associate, assisted in preparing this article.
© 2002 The Washington Post Company