Interview with the Japan Offspring Fund (an Adobe Acrobat pdf from 2005) Japan Offspring Fund

How trading companies are profiting from "free trade"

Q: So, you think there is no profit for the countries that engage in "free trade"?

A: Indeed, there is no profit. To understand this "free trade" mechanism, let us consider the example of coffee. This is a simple example, to illustrate how global trade can work. Let us say 1 kilo coffee has a value of 1 dollar for the producing country. In the consuming country, let us say the value is 10 dollars. This difference, the 9 dollars, is called "comparative advantage". According to international economic theory, the profit, in this case 9 dollars, is supposed to be divided between the producing country and the consuming country. But, in the real world of trade, it is the trading company that will get the entire profit. The trading company buys the 1 kilo coffee for the price of 1 dollar, and it is sold in the consuming country for the price of 10 dollars. It is the trading company that makes 9 dollars worth of profit, which is the comparative
advantage.

Of course there are some other expenses such as shipping, but we will not include that in our discussion. Fair trade organizations have emerged as a strong partner for farmers in developing countries to reach consumers in developed countries. Fair trade rules and fair-trade labelling are strategies for poverty alleviation and sustainable development. A growing movement, its purpose is to help producers who have been marginalized by the conventional "free-trade" system. In this case, the producing country has simply exchanged 1 kilo of coffee for 1 dollar. There has been no real profit that can be considered a comparative advantage. Also, in the consuming country, the 1 kilo has become worth 10 dollars, but that also cannot be considered a comparative advantage. In other words, only the trading company is benefiting from trade, not the exporting or importing countries. No profit for countries

Q: What you are saying makes a lot of sense. So, why do people think "free trade" is so good?

A: Because there is so much propaganda, which makes people believe that the politicians who are opposed to "free trade" are not considering the welfare and profit of ordinary citizens.
It is also said: "According to economists, trade brings profit to everyone involved. If we are unable to trade, our manufacturing industry would make a loss, and consumer can not get cheap goods from abroad. People would be betrayed!" For example, you may argue that in order to protect farmers, the degree of food self-sufficiency should be increased. To counter this, the economists who are all educated in the "free trade" way of thinking, will simply say it is foolish and that it ignores economic theory.

In my opinion, the "free trade" economic scholars are mistaken. These days, the economists all assume that "free trade" will benefit countries, but really, the only ones who profit directly are the trading companies. The fact that the profit of
the trading companies is missing from trade theory means that we cannot call it scholarly.

quote:

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As the theory of comparative advantage is presently so predominant, if we engage in "free trade", the number of workers will have to decrease. By the way, unemployment has also always been a serious domestic problem, even in the era when "free trade" was not as predominant. However, it has always been possible for workers to move within a country and find work elsewhere. But, with "free trade" this is impossible. "Free trade" means goods and money can move freely cross borders. Workers can not move freely and settle in a different country. To insist on talking about "free trade" is thus unfair and dishonest.

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Edited to fix link. Thank you, Noise.

[ 31 May 2006: Message edited by: Fidel ]

I quite enjoyed that read. This part stood out to me:

quote:

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Consequently, these are the 5 countries that will profit from "free trade". It will
be impossible for developing countries to benefit from "free trade", since they
have virtually no trading companies. As the head office of the major trading
companies are almost all located in only 5 developed countries, the investments
and profit of trade will go where those 5 countries will gain added benefit.

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The 5 countries are US, Japan, UK, Germany, and France.

[ 31 May 2006: Message edited by: Noise ]