Have We Been Sold Down the River?

The Free Trade Agreement with China and Monied Class Welfare

As the ink dries on the now-signed Free Trade Agreement with China (“FTA”) serious disquiet is being expressed in chardonnay vale, where the chattering classes gather. So far the disquiet has been expressed in terms of two reasonably predictable chestnuts:

1. The foreign policy argument. The contention is that that one should oppose the FTA because China is engaged in some activities with which the protagonists disapprove. In particular, it is argued that NZ should not enter a FTA with China because of that country's unsavory human rights and environmental policies. (Maori Party, Greens) Just how opposing, or not signing, a free trade agreement might represent meaningful opposition to these problems is not immediately apparent. Largely the foreign policy arguments are just plain empty posturing in an attempt to curry some local domestic political favour.

2. The domestic policy argument. Here the concern is to protect the jobs of New Zealanders. The causality chain argument runs as follows: the FTA with China will bring lower cost Chinese manufactured goods, services, and labour into New Zealand. As a result New Zealand domestic firms will go out of business, jobs will be lost, and wages will be eroded. (NZ First, Greens, Maori).

The domestic policy arguments deserve more serious consideration because they raise so many fundamental issues about government, justice, and care for the poor. To cut to the chase, what we are really talking about here is the rectitude of using tariffs (taxes on imports or exports) to redistribute property from one section of the community (the purchasing consumer) to another (the manufacturing firm/shareholders/employees).

In our current world, tariffs which tax the movement of goods and services in and out of the country, do not exist for the purpose of raising revenue for the civil government. Revenue raising to fund the lawful activities of civil government is legitimate within the biblical constitution (Romans 13: 6,7)—and therefore the state has a general lawful right to tax to raise operational revenue for God-ordained, lawful activities. It is the duty of all to pay up. But tariffs to not fall into that category. Tariffs in our world exist for one purpose, and one purpose only—to redistribute wealth from one section to society to another. That is manifestly not a lawful activity of civil government—because no person (natural or legal) is allowed to steal.

How does this work? Consider garment manufacturer, Cut Price Clothes, which manufactures in South Auckland and sells throughout the country via general merchandise superstores, such as The Warehouse. Tariffs on imported clothing from China have kept the price of those imports higher, and has meant that Cut Price Clothes, which is not as efficient nor as low cost as the Chinese clothing manufacturers, has been able to stay in business. The owners and shareholders have consequently profited; its staff have been kept in jobs.

But at what price? The price is paid by all the purchasers of low cost clothing in New Zealand—because they have to pay a higher price for clothing. Consequently, all the buyers of the clothes, the consumers, are poorer—have marginally lower living standards—as a result. Property is being taken from one section of the community and redistributed, by means of the tariff mechanism, to a firm in South Auckland. Now, amongst the many thousands of purchasers of low cost clothing are those who are really struggling to make ends meet. Having an extra dollar or two at the end of the month is meaningful to these families. But the tariff mechanism means that these people are made poorer.

The leads to the second major issue with tariffs: they are not only a form of institutionalised theft, they also disadvantage and hurt the most poor and vulnerable in the community. In other words they steal primarily from the poor. They are a “grinding the faces of the poor” mechanism.

What will happen under the FTA with China? The first and most immediate impact will be upon Cut Price Clothes in South Auckland. The poor, less-well-off consumer will no longer be subsidizing their business. If they do not find a way to lower their costs of production, in the face of the less expensive clothing imports from China, profits will be eroded, staff will be laid off, and probably the firm will go out of business.

Cut Price Clothes will have a range of options to consider. It may invest in less labour intensive manufacturing. It may move to higher value add, higher priced garments. It may identify niche clothing markets where specialisation will sustain higher prices. It may move its manufacturing offshore where labour costs are lower. It may close down.

Let us be clear. There will be cost—but the cost has come about in the first place because of the immoral, unethical policy of a civil government stealing from one segment of the community and giving to another. If that policy had not been in place to begin with, Cut Price Clothes would never have gone into business—as least not in its current form.

The second impact will be upon the community as a whole—and most particularly upon the poorest segments of society that look to purchase low cost clothing. They will be able to clothe themselves and their children for less cost. By this one stroke of the pen, as it were, the living standards of the poor will go up. But not only that, they will go up in an ethical manner. Theft will not be intrinsically involved.

The Bible has much to say about authorities and governments which grind the faces of the poor. Tariffs always serve to grind the faces of the most poor and the most vulnerable in a community. They grind the poor down in order to advantage the favoured few.

Tariffs are really a form of monied class welfare. In the end, the real beneficiaries are the owners, the shareholders of the subsidised and supported businesses. Theirs are the pockets that are lined by the institutional theft of tariffs Why? Cut Price Clothes is not operating a sustainable business in a sustainable market. The owners are unlikely ever to face labour market competition where they are having to compete (and pay accordingly) for labour. They will be able to pay the minimum wage to their staff in perpetuity. Meanwhile, their margins and profits are protected by the civil government. They enjoy price protection.

Will the FTA with China solve all our economic problems? Of course not. It will actually cause hardship and difficulty in some quarters for some time. Is it more ethical and moral? Absolutely. Will it benefit the poor and needy without employing means of institutionalised theft? Absolutely. Does it reflect more the constitution of Jerusalem than Athens? Absolutely.

Disclosure of Interest: contributors own shares in The Warehouse--which seeks to Make the Desirable Affordable. We believe that, for the sake of the most vulnerable in our community, this is a great mission statement.