The apparently unfair labor differential

There is a great deal of talk in the produce industry about unfair trade practices from other nations, which hit U.S. growers.

Perhaps the most common complaint is discrepancies in labor costs. As usual, your perspective will shape your opinion. A Florida grower may complain that Mexican competitors pay in a day what he has to pay in an hour. Very likely. But what would a grower in California (with a $15.50 minimum wage) have to say about the grower in Florida ($11 minimum wage)?

In any event, such differentials in labor costs do not amount to unfair trade practices (which include activities like dumping and excessive subsidies). They are a deliberate part of economic policy.

After the Second World War, the victorious Western Allies attempted to set up a world order that would make another such war impossible. They created what is now called the “liberal world order” (“liberal” having little to do with the term as used in contemporary American politics). It has been pursued by U.S. presidential administrations from Truman to the present.

Economically, the liberal world order mandates free and open trade. “Openness is manifest when states trade and exchange on the basis of mutual gain,” writes one analyst.

This openness means globalization—that is, the “breaking down of artificial barriers to the flow of goods, services, capital, knowledge, and (to a lesser extent), people across borders.”

In North America, this policy led to the development of a free-trade agreement between the United States, Canada, and Mexico. It was called the North American Free Trade Agreement (NAFTA), and it was implemented in 1994. The terms of NAFTA were later renegotiated, leading to the U.S.-Mexico-Canada Agreement (USMCA), enacted in 2020. But USMCA did not change the fundamental principles of the agreement. Both essentially ensured free trade—that is, trade without tariffs—among the three nations.

The parties that created this agreement were not blind to the fact that there are huge wage differentials, particularly between Mexico and the other two nations. From the point of view of the liberal world order, such free trade is beneficial: it makes goods cheaper for consumers in richer countries and raises the standard of living in poorer countries, who have more opportunities for work.

Of course, there were winners and losers. Some U.S. manufacturers moved their plants south of the border, where, as we have seen, labor costs less. The manufacturers won out, because their costs were lower, and consumers may have won out, because the goods are very likely cheaper.

The losers? Many blue-collar workers in the Rust Belt, whose jobs had taken a permanent vacation in Mexico. This fact alone does a great deal to explain the current political mood in the United States.

Some U.S. fruit and vegetable growers took the opportunity to expand their operations to the south. Those who did not were harmed—for example, certain Florida growers, who now face direct competition from Mexico in important seasonal windows, particularly in the winter. They are of course outraged by this development. (When a policy hits someone else, it is regrettable; when it hits you, it is an outrage.)

Nevertheless, the situation is not the result of unfair trade practices. It is the result of a world economic and political policy that now spans a lifetime. The previous and current presidential administrations have backtracked from this policy, but mostly in regard to China. No one is interested in revisiting USMCA, especially since it has just been renegotiated.

In short, discrepancies in labor costs between the U.S. and Mexico understandably feel unfair to those who have been harmed by them. But they cannot be reckoned as unfair trade practices: current policies took them into account, with the ensuing consequences.

To paraphrase Winston Churchill, we could say that free and open trade between nations is absolutely the worst trade policy—except for all the others.