The Travels of a Tee Shirt in a Global Economy - Paper Example

Pietra Rivoli’s “The Travel’s of a T-Shirt in the Global Economy” is a narrative that illuminates the globalization debates and examines the key factors to succeed in the global business (2009). The book traces the life of a t-shirt from a cotton field in Texas to a Chinese factory, and back to a storefront in the US before finally making its way to a used clothing market deep inside Africa. Rivoli (2009) reveals the economic and political forces at work in the global economy. The book also examines a wealth of questions about economics, trade, ethics, politics, and the impact of history on the business landscape of today. Using Rivoli’s book “The Travel’s of a T-Shirt in the Global Economy”, this paper will demonstrate that government subsidies are a danger to a truly globalized trade.

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Discussion

Subsidies Are a Threat to Competition

For over 200 years, the US has dominated if not altogether monopolized the cotton production industry. The victory has come even though every year, the US farmers compete against farmers from over 70 countries (Rivoli, 2009). As Rivoli explains, history shows that almost all the dominance in world markets is temporary, and even the most impressive narratives of industrial victories on the national level ultimately end due to the ever shifting comparative advantage. For example, within relatively few years, dominance in consumer electronics has shifted from the US to Japan, then to Hong Kong, then to Taiwan, and now to China.

Likewise, the production of apparel has shifted from South America to Southeast Asia, then to the Caribbean, and now to Asia again. Steel dominance has moved from the US to Japan, and then to South Korea. However, due to heavy subsidization by the government, the US has managed to be the undisputed leader in the global cotton industry for over 200 years (Rivoli, 2009). Due to heavy subsidization, particularly by the government of a wealthy nation, poor countries have little or no chance of competing in the global market.

Threat to the Existence of WTO

Government subsidies are a threat to the existence of global trade agreements including the World Trade Organization (WTO). Subsidies can be compared to an athletic competition whereby some athletes violate anti-doping rules while others abide by the regulations. The result in each case is that there is unfair competition involved. Since its formation over 20 years ago, the slogan of the World Anti-Doping Agency has been “play true.” The objective of the agency has been to evoke fairness and equality on the field. Doping is a form of cheating, and when allowed to happen, the very competitiveness, and fairness of the game is undermined, cheating clean competitors, and tainting victories.

As fans of various sports, the world wants to watch competitive sporting events, and WADA’s role is to create clean competitions. Once someone cheats in any competition, the bigger problem is that the vast majority of participants are compelled to follow suit for fear that they may be left out completely. As reveled by Rivoli (2009), the US has managed to cheat, and stay ahead of the competition by offering the subsidies and bending the rules of WTO. The worst case scenario would be a disintegration of the WTO as more countries realize that they will not emerge from poverty by participating in the WTO, reversing any benefits achieved so far.

Similarly, the global community is like the sports fans in the international markets that value and benefit from competitiveness in international markets. World Trade Organization (WTO) among other agencies and rules were formulated to precisely level the global market playing field, and ensure that there is fair competition that is essential for innovation and benefit global consumers. By offering subsidies every year to the cotton farmers, the US gives the farmers an unfair competition to the detriment of jobs, businesses, and consumers.

As revealed by Rivoli (2009), the US cotton subsidies exceed the entire Gross Domestic Product (GDP) of many poor countries in Africa that produce cotton too. Such huge subsidies violate the rules and spirit of global trade as they unfairly tilt the trade in favor of the American producers. The issue of the comparative advantage enjoyed by the US cotton farmers in Texas lies in their ability to collect enormous government subsidies was a sore topic that led to breakdown in trade talks in Cancun, Mexico.

Threat to the Entire Global Trade

Subsidies are a threat to globalized trade because those industries that get subsidies by their government are often the ones that do not need any subsidies at all. Perhaps, it would be fair if those competitors from the least developed economies would be the ones to get subsidies. However, as it happens, the US is one of the most developed economies in the world and its industries compete best with German chemical companies, Japanese automakers, and Swiss pharmaceuticals. However, when it comes to the production of cotton, these other giants cannot compete due to climatic reasons. As a result, cotton growers in America end up competing with producers from some of the least developed regions in the world.

The cotton industry is accessible to many poor nations because often, climate is the only competitive advantage that such producers enjoy. Due to the vast number of countries involved, the cotton industry can be very competitive (Rivoli, 2009). Consequently, many of these poor nations are often trapped down by low wages, and low profits, thereby facing a continual threat of losing competitive positions. US subsidies to the cotton farmers in essence create a monopoly by pushing out farmers from the poor regions.

Threat to Equal Wealth Distribution

Subsidies are a threat to universal economic growth and equal distribution of wealth around the world. To highlight just how serious subsidies are, one just needs to look at the reaction of the US to China’s industrial policy dubbed “Made in China 2025.” The objective of the policy is to rapidly expand China’s high-tech sector and develop its advanced manufacturing (McBride & Chatzky, 2019). However, the fact that the plan involved heavy subsidization of many Chinese firms has been interpreted as a threat by President Trump among other leaders of the industrialized democracies.

The response of the US has been to place tariffs on Chinese products to the US as well as blocking some firms in the technology industry that China seeks to acquire. Some of the subsidies that China is planning include low interest loans, state funding, and tax break among others that extend to hundreds of billions of dollars (McBride & Chatzky, 2019). Such subsidies would inevitably increase trade deficits of world industrial giants including the US.

The fact that the US with a per capita income of 56,000 dollars a year sees the threat posed by China with a per capita income of 8,000 dollars a year highlights the dangers posed by subsidies. As McBride and Chatzky (2019) further explains, China has argued that by offering such subsidies, it is only imitating what the US and other successful economies have done to stay ahead of the competition.

Threat to Global Food Security

According to Jayati Ghosh (2013), farming subsidies like those offered to US farmers are a threat to global food security. As Pietra Rivoli’s reveal in his book “The Travel’s of a T-Shirt in the Global Economy,” the subsidies that the US offers to its cotton farmers is greater than the GDP of other cotton producers such as Burkina Faso and Benin. Subsidies are bad for the small producers because they directly affect their food security. Such producers do not benefit from the increases in prices and also lose a lot when the prices decline when cheaper cotton products are imported into their countries primarily due to the size of their output and their economic capabilities.

Subsidies are also bad for the poor consumers in the small economies who have to pay high for the food imports that they depend on. Hence, subsidies by the US government have created two linked problems in many developing economies. One of the problems is that of livelihood insecurity of the food producers due to uncertainty in supply and rising costs (Ghosh, 2013). The second problem is the food insecurity due to the high and volatile food prices. To mitigate the threat posed to the livelihood and food of their citizens, many poor countries implement measures to support their small farmers.

By such measures, these governments try to make food affordable for the poor consumers while at the same time encouraging food production. However, such measures often come up against already existing World Trade Organization rules. For example, to provide food security to billions of undernourished citizens, the Indian government has been challenged by the US during negotiations. The challenge comes even though India's move would cost much less that what the US provides its manufacturers in terms of food subsidies.

The unfair rules allow for higher levels of protection and subsidies for the rich economies in comparison to those allowed for the poor countries. This is because the amber box subsidies are allowed to provide subsidies of up to 10% of their agricultural production. While the developed countries are only allowed 5% of their agricultural production, the reality is that the developed economies led by the US have a very huge agricultural production meaning that they can offer larger subsidies than (Ghosh, 2013).

Besides, the “green box” subsidies that the US offers its cotton farmers are not thought to disrupt trade, and are not subject to any limitations and conditions (Fabry, 2020). Hence, due to the loopholes in the WTO that developed countries have been able to exploit, subsidies are a threat to global food security. By creating a sort of monopoly in the global arena, and locking out competition from the developing economies, subsidies not only do away with fair competition but pose a serious threat to food security among the developing countries.

Conclusion

Using Rivoli’s book “The Travel’s of a T-Shirt in the Global Economy”, the paper sought to demonstrate that government subsidies are a danger to a truly globalized trade. As revealed, the US cotton farmers have been able to stay ahead of competition due to the heavy subsidies that they get from the government. As the paper has revealed, subsidies are a threat to global trade because it creates a situation that can be compared to doping in sports that ultimately kills competition. Ultimately, subsidies are a threat to equal distribution of wealth and are a threat to future trade negotiations and agreements including the very existence of the trade agreements that exist today. When the emerging economies finally realize that they cannot compete adequately with the advanced economies, they might break away from the existing trade agreements, putting in jeopardy the advancement of global trade.

References

Fabry, E. (2020, Jan 27). Industrial subsidies are at the heart of the trade war. Institut Jacques Delors. Retrieved from https://institutdelors.eu/en/publications/les-subventions-au-coeur-de-la-guerre-commerciale/

Ghosh, J. (2013, Nov 27). Why farming subsidies still distort advantages and cause food insecurity. The Guardian. Retrieved from https://www.theguardian.com/global-development/poverty-matters/2013/nov/27/farming-subsidies-distort-advantages-food-insecurity

McBride, J., & Chatzky, A. (2019, May 13). Is ‘Made in China 2025’ a threat to global trade? Council on Foreign Relations. Retrieved from https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade