Post-Brexit Britain should adopt unilateral free trade
20 July 2016
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Trade, Development, and Immigration
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It really could happen. Republican candidate Donald Trump might win the presidency of the United States on an overtly protectionist, anti-trade ticket. In a recent speech he slammed globalisation, and threatened to tear up the North American Free Trade Agreement (NAFTA). In the absence of the leadership of the United States, who will stand for free trade?
The answer should be: a newly independent Britain. Britain is a free-trading nation, and the new secretary of state for international trade Liam Fox MP gets this. He, like other prominent Leave campaigners, always argued that the EU constrained Britain’s free trade instincts.
The Common External Tariff (CET) is the EU’s protectionist wall – imposing tariffs on goods imported from outside. That and a host of EU non-tariff barriers raise agricultural and manufacturing prices by around 20 per cent within the customs union, to the detriment of our consumers. The EU’s record in signing major trade deals is likewise poor, not least because they are often used to attempt to export regulation and other non-economic issues surrounding human rights, while being delayed by the competing interests of 28 different member states.
But if we are to abolish the CET and expand free trade, the key thing our new secretary of state must remember is that it’s domestic consumers who suffer from protectionism. In the coming years, he’ll be inundated with UK producers and companies seeking exemptions or protection for their own industries. There will be calls for “British first” procurement rules, quantitative restrictions, non-tariff barriers through unnecessary standards and regulation, and much more. These will often get public support. After all, it’s always easier to identify those who may suffer if protection is removed or benefit from its implementation. This is why the EU still has its Common Agricultural Policy (CAP), despite a wide consensus that it is economic folly.
If the key insight that it’s consumers who suffer from protection is remembered, ideally we would embrace the only morally defensible trade policy – unilateral free trade. Yes, that’s right: the UK should remove all tariff and other trade barriers, allowing British consumers to import goods from all over the world without constraint. The consumption benefits of this are obvious. In war, we try to blockade economies so they can’t buy others’ goods. But tariffs and other barriers, in effect, act to blockade ourselves. Their removal means consumers can buy what they want wherever it is produced most cheaply – delivering lower prices in the shops.
Of course, some existing producers will suffer if protection is removed (but remember, 85-90 per cent of the UK’s economy is in non-protected sectors). The economy as a whole, however, will benefit. If an economy is trading freely, its resources are making the most of the opportunities prescribed to them by the pattern of prices in the rest of the world, and this competition means the economy as a whole will be more productive.
Paradoxically, this policy position would put the UK in a powerful position vis-à-vis the EU. EU exporters selling into the UK’s market will now be facing competition from around the world, and UK prices will be lower – hurting their profit margins. The German car industry and others will be desperate to avoid this scenario, and will lobby the German government and the EU to come to some sort of deal to maintain current arrangements. This would be sub-optimal, but may be politically sensible as a transitional arrangement.
What if Theresa May’s government is simply not bold enough to adopt unilateral free trade? The priority then should be to move away from the sorts of “managed trade” deals that have come to dominate in recent years. Bilateral trade deals should be with countries large enough to affect world prices, and should genuinely be about removing barriers and mutual equivalence of regulation, rather than seeking to always harmonise everything and influence other countries’ internal politics.
Yesterday, May suggested a ridiculous “national interest” test on foreign takeovers in the UK. We must hope that Fox can convince the Prime Minister that, when it comes to trade, exchange happens between individuals and not nations. Nativism and protectionism are damaging to prosperity. The UK now has an opportunity on trade to lead, through example, away from the damaging direction the US is moving in.
This article was first published in CityAM.
The answer should be: a newly independent Britain. Britain is a free-trading nation, and the new secretary of state for international trade Liam Fox MP gets this. He, like other prominent Leave campaigners, always argued that the EU constrained Britain’s free trade instincts.
The Common External Tariff (CET) is the EU’s protectionist wall – imposing tariffs on goods imported from outside. That and a host of EU non-tariff barriers raise agricultural and manufacturing prices by around 20 per cent within the customs union, to the detriment of our consumers. The EU’s record in signing major trade deals is likewise poor, not least because they are often used to attempt to export regulation and other non-economic issues surrounding human rights, while being delayed by the competing interests of 28 different member states.
But if we are to abolish the CET and expand free trade, the key thing our new secretary of state must remember is that it’s domestic consumers who suffer from protectionism. In the coming years, he’ll be inundated with UK producers and companies seeking exemptions or protection for their own industries. There will be calls for “British first” procurement rules, quantitative restrictions, non-tariff barriers through unnecessary standards and regulation, and much more. These will often get public support. After all, it’s always easier to identify those who may suffer if protection is removed or benefit from its implementation. This is why the EU still has its Common Agricultural Policy (CAP), despite a wide consensus that it is economic folly.
If the key insight that it’s consumers who suffer from protection is remembered, ideally we would embrace the only morally defensible trade policy – unilateral free trade. Yes, that’s right: the UK should remove all tariff and other trade barriers, allowing British consumers to import goods from all over the world without constraint. The consumption benefits of this are obvious. In war, we try to blockade economies so they can’t buy others’ goods. But tariffs and other barriers, in effect, act to blockade ourselves. Their removal means consumers can buy what they want wherever it is produced most cheaply – delivering lower prices in the shops.
Of course, some existing producers will suffer if protection is removed (but remember, 85-90 per cent of the UK’s economy is in non-protected sectors). The economy as a whole, however, will benefit. If an economy is trading freely, its resources are making the most of the opportunities prescribed to them by the pattern of prices in the rest of the world, and this competition means the economy as a whole will be more productive.
Paradoxically, this policy position would put the UK in a powerful position vis-à-vis the EU. EU exporters selling into the UK’s market will now be facing competition from around the world, and UK prices will be lower – hurting their profit margins. The German car industry and others will be desperate to avoid this scenario, and will lobby the German government and the EU to come to some sort of deal to maintain current arrangements. This would be sub-optimal, but may be politically sensible as a transitional arrangement.
What if Theresa May’s government is simply not bold enough to adopt unilateral free trade? The priority then should be to move away from the sorts of “managed trade” deals that have come to dominate in recent years. Bilateral trade deals should be with countries large enough to affect world prices, and should genuinely be about removing barriers and mutual equivalence of regulation, rather than seeking to always harmonise everything and influence other countries’ internal politics.
Yesterday, May suggested a ridiculous “national interest” test on foreign takeovers in the UK. We must hope that Fox can convince the Prime Minister that, when it comes to trade, exchange happens between individuals and not nations. Nativism and protectionism are damaging to prosperity. The UK now has an opportunity on trade to lead, through example, away from the damaging direction the US is moving in.
This article was first published in CityAM.
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“genuine free trade doesn’t require a treaty” – Murray Rothbard
https://mises.org/library/humanity-trade
“Their removal means consumers can buy what they want wherever it is produced most cheaply – delivering lower prices in the shops.”
Right. So only price matters?!
‘”Their removal means consumers can buy what they want wherever it is produced most cheaply – delivering lower prices in the shops.” Right. So only price matters?!’
What matters are the priorities of individuals, not the priorities of others who want to force them to buy locally produced goods.
@ John P
‘”Their removal means consumers can buy what they want wherever it is produced most cheaply – delivering lower prices in the shops.” Right. So only price matters?!’ What matters are the priorities of individuals, not the priorities of others who want to force them to buy locally produced goods.
Your respponse makes a moral point and does not answer the economic question I posed.
Right. So only price matters?!’ What matters are the priorities of individuals, not the priorities of others who want to force them to buy locally produced goods. Your respponse makes a moral point and does not answer the economic question I posed.
Economics deals with the choices of acting individuals. Therefore it is down to individuals to decide what matters.
Indeed it does. And elected governments are entitled to enact policies that influence those individual choices where they are counter to the public interest. .
Indeed it does. And elected governments are entitled to enact policies that influence those individual choices where they are counter to the public interest. .
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What is the public interest but the interest of individuals up make ‘the public?’ What you’re saying is that government should prioritize the interests of certain individuals. Those individuals who want force to be used to stop other individuals from buying cheaper/better goods from abroad
No. I am saying the interests of minorities should not dominate the interests of the majority. And I have not used the word “force” and nor do I advocate its use.
Economics is also about influencing choices. Individuals would still be able to make free choices – it’s just that an ELECTED government should have the power to alter the payoffs of those choices so that the public interest is served.
‘No. I am saying the interests of minorities should not dominate the interests of the majority. And I have not used the word “force” and nor do I advocate its use. Economics is also about influencing choices. Individuals would still be able to make free choices – it’s just that an ELECTED government should have the power to alter the payoffs of those choices so that the public interest is served.’
You are engaging in hypostatization.There is no society apart from the individuals who comprise it.Society doesn’t have goals, values or desires.The public is not one homogenous blob so that it has the same interests on every single question
Consumers may choose to buy goods from abroad rather than a domestic producer.Why?ITS IN THIER INTEREST TO BUY GOODS FROM ABROAD. Newsflash: these individuals are part of the public.
But in buying goods from abroad their interests haven’t dominated other people’s interest. They haven’t abrogated the property of domestic producers or anybody else.
What if someone decides to shop at Sainsburys instead of Tesco? Has that person abrogated Tescos property rights? Have Tesco had their interests dominated? Far from it. That person may have hurt Tesco but they certainly haven’t done anything that requires the government to step in to make illegal.Nothing that requires the law to redress. They are simply exercising their freedom to but or not to buy. If the government were to make Sainsburys goods more expensive relative to Tesco so that consumers decide to shop at Tesco, that may help Tesco but it would hurt consumers. Would the the public welfare then have increased? No, it would not.Some people have gained, others have lost.Just as if you prohibit consumers from buying goods from abroad or make foreign goods more expensive relative to domestically produced goods, domestic companies gain whiles consumers suffer. You can’t say that the public interest has increased
What about people who decide to buy goods from out of town? Would you be in favour of government stepping in and imposing a tax on those goods so consumers would instead choose to buy goods made in their hometown so as not to put local workers out of a job? Or what about a household which decides to have dinner at home on a particular evening and are therefore not giving any business to restaurants in their area?Would you be in favour of slapping a tax on them so it would be cheaper for them to go out to eat and give business to local establishments? Would this be in the public interest?
What you want to see, is the state, which is predicated on force, prohibit consumers form buying foreign goods or make them so expensive that they chose to buy domestic goods instead,and then claim that this isn’t anyone dominating anyone else’s interest but,quite the contrary,is actually in the public interest.
Even domestic producers in their roles as consumers are hurt when freedom of choice is prohibited. Because first and foremost we are all consumers. Production is for the sake of consumption, so any restriction on freedom of consumption hurts everyone in the long run.The public interest is served by simply letting individuals make their free choices.