The importance of imports
9 July 2021
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Publications
Regulation
Submission to the government's Taskforce on Innovation, Growth and Regulatory Reform
21 July 2021
Lifestyle Economics
15 November 2024
https://iea.org.uk/wp-content/uploads/2021/07/Importance-of-imports.pdf
Summary
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- The UK government promotes international trade under the banner ‘Exporting is GREAT’. This is laudable, but the economic benefits of free trade come mainly from what countries import, rather than from what they sell overseas.
- This may seem counter-intuitive. Many still argue that imports are ‘bad’, that import substitution is ‘good’, and that we should reduce our dependency on global supply chains by ‘buying British’.
- This paper therefore refreshes the arguments in favour of free trade in the light of three current controversies: the potential opening up of UK markets to cheaper agricultural imports, the impact of Brexit on UK trade, and lessons from the Covid pandemic.
- Free trade happens when people can buy goods and services from whomever and wherever they like, without obstruction from governments. This allows people to specialise in whatever they do best and maximises consumer welfare.
- Arguments against tariff-free trade usually boil down to saying that British families must pay higher prices to subsidise farmers or steelworkers who cannot compete with more efficient producers elsewhere. Worries about ‘unfair’ competition, or the benefits of seif-sufficiency, rarely stand up to serious examination.
- Free trade between individuals may sometimes lead to substantial imbalances between countries, such as the large trade deficits that the UK has run with the EU. But this is not necessarily a bad thing: many UK consumers may simply prefer German cars or Spanish holidays to their British equivalents.
- Anything restricting these choices will therefore leave people worse off. New barriers to trade with the EU might prompt some UK consumers to switch from EU imports to local products, but this should not be seen as a ‘benefit’ of Brexit.
- Consumers are already free to choose to ‘buy British’ – with their own money. While it may also be tempting for governments to favour suppliers from their own country, or region, this is rarely in the longterm interests of the people that they represent.
- This form of protectionism usually subsidises inefficient production, raises prices, and undermines productivity. ‘Buying British’ is not necessarily good for employment, either. Free trade may eliminate some jobs, but it also creates many others – typically in businesses where the prospects are better.
- International trade allows countries to spread risks by accessing a wider range of suppliers, making them more resilient to shocks. Indeed, the pandemic has illustrated the benefits of globalisation: imagine if every country had tried to develop and produce its own vaccine.
- Concerns about the impact of imports on the environment are usually misplaced as well. importing foods and other goods from countries that can produce them more efficiently can actually be better for the planet than ‘buying local’, even if transport costs are higher.
- In short, free trade benefits both parties – or else it would not happen at all. This means that imports and importing are GREAT, too.
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