Three cheers for free trade with Australia
Minette Batters, president of the National Farmers Union (NFU), argues that removing tariffs would make it ‘all but impossible’ for British family farms ‘to compete with vast volumes of imports from the southern hemisphere produced in a very different manner’.
In other words, we must subsidise farmers who cannot compete with imports produced in countries with a comparative advantage in agriculture, even if this means that British families must pay higher prices for food. This is a perfect illustration of putting the interests of a small group of producers above those of society as a whole.
Opponents of free trade often respond that foreign competition is somehow ‘unfair’. The NFU claims – without much evidence – that British farmers have to produce to higher standards than those in Australia or New Zealand. But if this is indeed the case, consumers should be free to decide whether to pay a premium for the superior UK products.
Even if we assume (for the sake of argument) that animal welfare standards are a lot lower in Australia or New Zealand, and therefore unacceptable, wouldn’t the correct policy response be an outright ban on imports, not tariffs? This surely applies in the case of any goods that might be harmful to consumers.
The hard reality may simply be that agriculture in Australia and New Zealand is more efficient, thanks to factors such as economies of scale, or more favourable weather.
It may even be better for the environment to import foodstuffs from the other side of the world – where less energy and fewer agrichemicals are required to produce them – than to rely on small family farms in the UK.
Let us quickly recap the arguments in favour of free trade. Adam Smith emphasised the benefits of specialisation. It makes no sense for an individual to try to be self-sufficient in everything. Why, then, should the government make it harder for anyone to import some good or service from another that can make it more cheaply?
David Ricardo took this idea further by showing that it is not even necessary for one country to have an absolute advantage (or competitive edge) in order for there to be gains from trade. Instead, they simply need to focus on what they do best compared to the alternatives available to them.
John Stuart Mill developed the point that free trade enables countries to be more efficient in whatever it is that they do. In other words, it boosts productivity. Examples include the ability to import better machinery and equipment, the greater sharing of knowledge, and additional competitive pressure on domestic producers.
All of these arguments apply to agriculture just as much as to any other sector – and the benefits come mainly from imports, rather than exports.
Why then is protectionism still so popular? Despite numerous real-world examples of the benefits of a more open economy, many people still argue that we need to be saved from the ‘horrors’ of free trade.
In part this is because trade barriers typically provide a large benefit to a small number of people who find it easier to form lobby groups (such as the NFU) and drum up sympathy. It is difficult for politicians to resist calls for ‘something to be done’ to protect farmers, or steelworkers.
The gains from free trade, though greater, are usually less visible and more evenly spread. No-one seems to speak up for consumers. Indeed, their interests have barely been mentioned in any of the press coverage of the UK-Australia trade talks.
Instead, the elimination of tariffs on food imports is widely seen as a ‘concession’ that the UK may need to make to gain access to Australian markets, rather than (as it should be) a win for UK consumers.
In addition, there are plenty of flimsy arguments that still resonate with the public. In particular, it is often claimed that tariffs are necessary to protect jobs. It is true that free trade is likely to ‘destroy’ some jobs in some sectors. But free trade creates more jobs in those sectors where countries do have a genuine advantage. Jobs in these sectors are also likely to be higher paid and more secure.
Given that free trade boosts overall prosperity, it should be possible to compensate the losers and still come out ahead. And if there is something special about small family farms, such as the contribution they make to the management of the rural environment, they can and should be paid specifically for this.
What is more, lower prices do not just help consumers. Money saved by buying cheaper imports is money that can be spent on other goods and services, including those produced at home. Input cost savings from cheaper imports also benefit other businesses directly. For example, lower food prices are good for the hospitality sector, and cheaper steel helps manufacturing.
The importance of ‘food security’ is widely exaggerated, too. It is hard to see the circumstances where the UK would face an existential crisis due to a shortage of lamb chops. But if anything, being able to source food from a wide variety of suppliers worldwide should reduce the UK’s vulnerability to shocks.
The upshot is that the UK should start from the position that the optimal tariff on all imports – including food – is zero. If that means lowering barriers to trade unilaterally, then so be it.
This article was first published on Julian Jessop’s blog.