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Effects of globalization

Trade instead of migration

One benefit of fair trade should be to generate more employment in the migrant-sending countries.

Standard trade theory argues that the richer countries, which have more capital, should specialize in the high-tech goods such as cars or machine tools. Meanwhile the poor countries, which have more and cheaper workers, should specialize in the labour-intensive activities such as garments or toys. Since free trade should in theory benefit everyone, all countries should thus reduce tariff barriers.

In practice things do not work out that way. Trade barriers have fallen but in a lop-sided fashion. As a result, globally the tariffs for textiles and clothing, for example,are twice as high as the average tariff for industrial goods as a whole. Even if trade in manufactured goods were more genuinely free, however, it is doubtful that it would substitute to any great extent for migration. This is because nowadays manufacturing is a much less significant employer.

A more promising form of substitution might be through trade in services. Advances in communications and information technology now make it much more feasible to trade services across international borders. Companies in the Caribbean and elsewhere, for example, have been doing ‘back office’ work for global corporations. Call centres are also springing up all over the world. Even so, such work can typically employ only a small and well-educated part of the workforce.

Meanwhile massive subsidies to US and EU farmers enable them to undercut many farmers in developing countries. Mexican farmers in particular have suffered from the North American Free Trade Agreement (Nafta). About half of the EU's annual $120 billion budget covers the cost of the Common Agricultural Policy whose subsidies provide a quarter of the average farmer's income in the EU-15.

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Container port in Fiji

Container port in Suva, Fiji.
Photo: Peter Stalker