Fair trade – How hard can it be?

This year’s United States Presidential address to the congress featured an impassioned plea by Pres. Donald J. Trump towards focusing more on fair trade. His reasoning was clear: a fair global trade will generate less disruptive effect on societies. His concerns were directed toward the ordinary American tax payers, and his interest in protecting their livelihood. But, his calls for incorporating fair trade as part of globalization has another beneficiary: the entire world itself. This is an unintended consequence for a US president who has admitted to eliminating any pretensions of him acting as “the leader of the free world”. American policies will be a powerful force in dictating the direction of the global economy for decades to come. It may not be a deliberate attempt to change the world, but a mere result of being the most powerful and richest country on earth.

To tackle fair trade, a key issue the president raised was: creating a better system of taxation across nation states. The goal of his proposed revised taxation structure is to make trade more equitable between nation states. The example he used to reiterate his logic on fair trade and taxation focused on Milwaukee, Wisconsin based Harley Davidson. Harley Davidson has been part of the American journey for the past 114 years. Yet, it has difficulty competing in some of the world’s largest motorcycle markets, including India.

North American motorcycle market accounts for only 2% of the global motorcycle sales volume. It is tiny compared to the rest of the global motorcycle marketplace. The largest motorcycle manufacturer in the world is Minato, Tokyo, Japan based Honda. India is one of the largest volume markets for Honda. In India, Honda has managed to establish a large local manufacturing facility to produce the popular mass market low displacement motorcycles. The sheer volume of monthly sales of Honda motorcycles overshadow the annual sales of Harley Davidson, not just in India, but around the world.

The reason for Harley Davidson being overshadowed by motorcycle manufacturers from the rest of the world is partly due to their strategy of catering to an exclusive set of customers. They position themselves as a lifestyle brand more than a motorcycle brand. Most of the sales volume in Asia is for commodity, commuter, low displacement motorcycles. Harley Davidson has no products to compete in this segment. For European markets, Harley Davidson again forgets to cater to the sports bike segment. The issues of Harley Davidson’s struggle in global markets are not just due to taxation and duties on motorcycles.

If the interest in making global trade fairer is genuine, one has to consider another key component: the human factor. Even the world’s most powerful democracy starts crying foul play when it comes to global trade, makes one wonder the real consequences of global trade in this world.

Recently, the privately held food manufacturer Cargill came under microscope for their questionable environmental practices in bringing food to the table for millions of Americans. Cargill and its local suppliers involved in circumventing local Brazilian laws to prevent deforestation, is another great example for the desperate need to incorporate fair trade in globalization. The Brazilian suppliers of Cargill are empowered by the capital and resources of the North American market, which even local governments can’t fight against.

The Brazilian soybeans could have been replaced by produce sourced from North American farmers themselves, who adhere to more stringent environmental standards than Cargill’s Brazilian counterparts. Instead Cargill’s decision to cut upfront costs for livestock feeds, explicitly demonstrate the flaws in global trade. A call for fair free trade also means placing restrictions for companies like Cargill. The current trade practices allow unhinged environmental damages in the process of bringing fast-food burgers to the American market. Therefore, a call for fairer traded world also means better protection of Brazilian rain-forests.

Global trading of coffee beans is another great example to illustrate the difficulty of implementing fair trade. Coffee is one of the largest volume traded commodity in the world. Yet, only 30% of the coffee beans produced worldwide meet the current definition of fair trade. Even the millennial favorite coffee chain: Starbucks, has managed to source only about 8% of their coffee beans through fair trade.  The current mechanisms to create fair traded coffee beans is riddled with massive economic and social problems. An important issue that comes to my mind is: despite the coffee chains marketing the fair traded coffee at a premium price; only a fraction of the added price paid by the customer, reaches the producer.

The discussion on fair global free trade is a great running start to create a more equitable world. Creating uniform taxation rules across nation states is the first logical step towards this goal. But, the concept of fair trade extends way beyond mere taxation. I am excited by the fact that the US president has initiated a conversation on fair trade. It is an important topic that has more substance to it than just the mettle of selling motorcycles made in Milwaukee to the milkmen in Mumbai.

Descriptions for photographs featured in this post from top to bottom: 1) Photograph of the Whitehouse, 1600 Pennsylvania Ave NW, Washington, DC 20500, United States, at dusk, via Wikipedia. 2) A vintage style Harley Davidson advertisement poster featuring model Marisa Miller, obtained from public domain via Pinterest and reproduced under fair usage rights. 3) Jaguar (Panthera onca) photographed at the Toronto zoo, obtained via Wikipedia. Jaguar is a near endangered apex predator. Its natural habitat include the Brazilian rain-forests, that are currently under threat of massive deforestation due to unfair trade practices followed by food suppliers like Cargill. 4) Commercial coffee farm in Jinotega, Nicaragua, Source: Lillo Caffe, obtained through Dartmouth college blog-post on subsistence agriculture in Nicaragua.

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