Consumer Preferences for Fair Trade Foods: Implications for Trade Policy

Economists overwhelmingly support free international trade. According to a 2006 Economists’ Voice survey, for example, 87% of economists polled agreed that “the U.S. should eliminate remaining tariffs and other barriers to trade.” Yet a vocal community of activists opposes globalization due to concerns that trade exploits workers and the environment in the developing world. In response to these concerns, Congress has recently taken steps to make pending trade agreements contingent on trading partners abiding by international labor and environmental standards. And while campaigning for the Democratic presidential nomination, both Hillary Clinton and Barack Obama called for reopening NAFTA negotiations in order to include more stringent environmental and labor rules. Whether these proposed policy changes are motivated by altruism or by more familiar protectionist arguments, the new restrictions are likely to increase production costs in developing countries, ultimately increasing the price U.S. consumers pay for imported goods. However, this welfare loss may be at least partially offset if Americans derive satisfaction from knowing that the imports they consume are produced in a safe, clean environment. In order to understand whether this proposed legislation is likely to have a positive net impact on American consumers, it is necessary to understand the premium they place on imported goods produced under stricter labor and environmental standards. A straightforward way to answer this question is to estimate the premium consumers are willing to pay for the “fair trade” designation.