Thanks to the world wide web and international shipping, the world is our marketplace and our shopping mall. You can buy products from anywhere in the world at any time. However, that does not always mean it is a good idea. What quality are the products you are getting, and how are they produced? Was child or forced labor involved?
This is where shopping ethically comes in, as well as Federal regulations on trade imports. However, the debate over fair trade, Federal law, and how we deal with other countries when it comes to goods have changed over the last decade, but even more over the last couple of years.
The current administration is pushing for not only fair trade but treaties and tariffs that seek to even the playing field internationally. So where are we as a nation when it comes to fair trade and imports? Here is a quick update.
What Does Fair Trade Mean?
First of all, we need to understand that fair trade has different meanings depending on who is using the term and the context. Quite simply, it means one of two things: Either it refers to fair trade labeling of products or to the idea that trade deals between nations should be “fair.” This last definition creates its own issues, and we will talk about that in a moment.
First, fair trade labels have both a vague and specific meaning. Why? Because there are several non-profits who are engaged in fair trade labeling, essentially certifying products as fair trade. This is good news in that consciousness of not just price but where a product came from and who might have suffered to produce it is on the rise. The downside is that depending on the label, “fair trade” might mean something a little different.
Consumer demand is largely driving this definition of “fair trade” as they demand that the products they purchase benefit those in the countries where they originate. Essentially all of the fair trade labels mean the same thing: They are business practices “that prioritize the health, economic stability, and independence of disadvantaged producers all over the world.”
The second aspect of fair trade refers to whether or not a trade deal between two nations or entities is “fair.” The only problem with this definition of trade, in the news and all over Twitter recently, is that “fair” can be defined differently by those two entities. By definition, if the agreement mutually benefits both parties, it is fair.
However, one country may have more or better exports in one area while the other country specializes in a different area. Looking at things item by item may not seem “fair,” but when looked at as a whole, most deals are well negotiated. Still, there are exceptions, and fixing those has become one priority of the current administration. As a result, people are discussing this second aspect of fair trade, which in some ways is related to the first.
A New NAFTA?
When it comes to fair trade and Federal regulations, there have been significant changes, and for good reason. The North American Fair Trade Agreement, or NAFTA, was controversial even at the time it was negotiated and was blamed for many companies moving production of some of their goods to Mexico.
This was in part due to the cheaper labor there, and to the fact that in the United States, companies were dealing with strong unions who negotiated higher wages and better benefits for those who worked in the manufacturing industry. This had a good and bad side: It meant workers in the U.S. were paid well and taken care of, but it also meant making things in the U.S. became more expensive.
There were also deals made with Canada that some thought were unfair, and so this term, President Trump sought to renegotiate the deal, now known as the USMCA. The essential changes to the deal go like this:
- Changes for Automakers and Auto Parts Makers: New rules about wages and the percentage of car parts that must be made in North America to avoid tariffs have changed.
- The Dairy Market: Canada opened up its dairy market to U.S. Farmers. This is good news to an industry that deals with everything from exacting FDA pallet regulations to higher shipping regulations that increase costs and eat into profits. A new, neighboring market.
- Chapter 19 Stays: The special dispute process between Canada, the U.S. and Mexico stays in place.
- Assurances on Auto Tariffs: Canada and Mexico got assurances that the U.S. would not raise tariffs on cars or auto parts.
- Improved Labor and Environmental Rights: These especially apply to Mexico — transports that enter the U.S. must meet higher safety standards and labors must be better able to organize and form Unions. In conjunction with the Mexican elections and the victory of AMLO, who promises to eliminate corruption, these are good steps, although difficult to achieve and enforce.
- Increased Intellectual Property Protections: Copyrights and other protections extend across borders.
- Drug Companies Get More Footing: Drug companies will be able to sell prescriptions for 10 years in Canada before facing generic competition.
One of the more interesting terms is that the deal must be reviewed in six years to see how it is working and if it needs revision. It seems likely at this point that the U.S. at least will be under different leadership at that point, so things like the controversial steel tariffs of 25 percent may be negotiated differently.
Trade Wars, Tariffs, and What They Actually Mean
What do tariffs actually do, and what do they mean? The new trade war with China brings with it one simple fact: It will impact the budget of most Americans. How do these tariffs work, and what do they actually mean to you?
Tariffs are designed to raise the price of goods coming from other countries in an attempt to do two things: eat into their profits and encourage U.S. buyers to purchase goods made domestically. Does it work?
Well, sort of. As we mentioned above, sometimes countries have an excess of products they export, and the U.S. is no exception. Because much of our grain is shipped to China, retaliatory tariffs have hit farmers hard. And while the price of U.S. Steel is up, as is consumption, companies like Harley Davidson and GM, who often buy steel from overseas because of price, are seeing the tariffs hit their bottom line.
Typically companies do not stockpile huge quantities of goods or raw materials they import, as this impacts inventory management and increases storage costs. So when prices rise, they almost immediately pay more for those materials. Those companies passing on those additional costs to consumers. Between those cost increases and government regulations they must often deal with, company profits and their stock prices are down. This has an effect on both pension funds and investment portfolios.
The big question becomes “What is next?” We don’t know, but as long as trade wars continue, the price of some goods will rise. In the end, the hope is that it all balances out to something resembling fair trade and reasonable regulation of imports.
BIO: Avery T. Phillips is a freelance human being with too much to say. She loves nature and examining human interactions with the world. Comment or tweet her @a_taylorian with any questions or suggestions.