Question

• Should there be compensation for those who are harmed by trade policy? If so, what type of compensation and on what basis should compensation be made? How might we evaluate “benefit” and “harm” from trade policy?

Answer 1

Free trade is good for big multinational corporations that can exploit the strengths and weaknesses of different trade partners.

Once these trade agreements are in place, the big corporations have new opportunities as the local markets change in the trading partner countries. While some of the smaller/local businesses manage to adapt to the new reality also (sometimes with help from government programs), the overall effect is usually not beneficial for the population or governments of the trading partner countries.

Regulated trade can be good if it's regulated fairly. However that's hard to achieve with the actual mindset of our governments which are more or less openly pro-corporation and not so much concerned about the people who vote for them or the big issues that our societies need to address. Free trade makes the implementation of new trade regulations much more complicated to adopt as many partners will have to agree to make it effective.

Since not all places are geographically equal, free trade can make some trading partner countries less attractive than others. For example, within the borders of a single country, different topography and climates make some regions less favored than others. It is still possible for disadvantaged regions to adapt to the new market forces by adopting new technologies or methods of transportation to deal with geographical or climatic conditions. However, this is assuming the country has the resources to be able to implement such changes.

Taking the United States as an example, economic activity often shifts from one region to another as problems specific to a region are either solved or created. Thus, an area once considered inaccessible will become attractive, while another which has become overpopulated or polluted becomes less attractive.

Many other countries in a free trade context find these changing realities harder to adapt to. Entire populations simply can't move across borders to reach for the gold or to abandon the mess created by different economic activities; corporations however have fewer restrictions and can do so freely.

With free trade, it's also harder for governments to collect a fair amount of taxes from corporations - they now have to stay competitive with governments from other countries. In some instances, when governments lower their corporate taxes to attract corporations to relocate they wind up depriving another government of tax revenue, as the corporation was seeking to evade taxes in their own jurisdiction. If the corporate tax rates in the corporation’s country of origin are lowered to entice the corporation to stay, no one ‘wins’ because corporate tax rates will now be lower in both countries.

Governments will then need to increase the tax burden on their citizens and small businesses by raising income and sales taxes; this ultimately will further slow growth and economic development.