Free trade, again

There is a very useful article in The Times, by Matt Ridely, which is headlined:  [The] “Best hope for free trade is to have principles.” These notions, free (at least freer) trade and principles, are two subjects with which I have dealt again and again, but I offer no apologies for mixing the two and going at both again.

Why,” Viscount Ridely asks, “does the European Union raise a tariff on coffee? It has no coffee industry to protect so the sole effect is to make coffee more expensive for all Europeans. Even where there is an industry to protect, protectionism hurts far more people than it helps. Last October the EU surreptitiously quintupled the tariff on imported oranges to 16 per cent to protect Spanish citrus producers against competition from South Africa and punish the rest of us. It imposes a tax of 4.7 per cent on imported umbrellas, 15 per cent on unicycles and 16.9 per cent on sports footwear.” Our “supply management” system for dairy and eggs is the same, of course, we want to “protect” several thousand farmers, mainly in Ontario and Quebec and so we decide to (financially) punish the rest of us, the other 35 million.

Matt Ridely goes on to explain that “I find that many Twitter trolls do not even realise that the European “single market” is actually a fortress protected by high external tariff walls. Yet external tariffs are pure self-harm; they are blockades against your own ports, as the economist Ryan Bourne has pointed out. We impose sanctions on pariah regimes, restricting their imports, not to help their economies but to hurt them. The entire point of producing things is to consume things (the pattern of pay shows that we work to live rather than vice versa), so punishing consumers is perverse. As Adam Smith put it, describing the European Union in advance, “in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer”.

Therefore,” he says, making something of a ‘modest proposal:’ “after Brexit, Britain should try unilateral free trade no matter what everybody else does — and even if the United States turns more protectionist.

So argues a group of 16 distinguished economists,” Viscount Ridely goes on to say, ” Economists for Free Trade, the first part of whose manifesto From Project Fear to Project Prosperity is published today. They calculate that unilateral free trade would benefit the British economy to the tune of £135 billion a year. One of them, Kevin Dowd of Durham University, has also written a powerful new pamphlet for the Institute of Economic Affairs entitled A trade policy for a Brexited Britain.” I have made a similar case in the past, although I usually argue that we should drop tariff after tariff after tariff as part of our negotiations with trading partners, rather than as a precondition, but, at bottom, I agree 100% with Matt Ridley.

Matt Ridley suggest that “the best negotiating strategy is liberalise first, talk second: dare others to follow suit. As Sir Robert Peel told the House of Commons in the Corn Laws debate in 1846, the government would cease “haggling with foreign countries about reciprocal concessions, instead of taking the independent course, which we believe to be conducive to our own interests” … [because, as I have said] … Like socialism, pure free trade has probably never been tried, but unlike socialism, the closer countries get to free trade the more they thrive. Consider three examples of unilateral economic disarmament: Britain after 1846-1860, Hong Kong and Singapore today. In all three cases, economic growth was far faster than the global average. Even China unilaterally reduced its tariffs significantly (albeit not to zero) some years ago — to great effect … [and] … Free trade is the very opposite of elitism. Its benefits accrue disproportionately to the poor; its costs to the crony-capitalist rich. However, if this is to be another Corn Laws moment — a major economy taking the plunge for unilateral free trade — then we need to think through how best to dare the world to follow us. For we will run into the problem of how to deal with other blocs’ non-tariff barriers.” Free(er) trade, in other words, leads to greater prosperity for all trading partners which, I have argued, leads to a more peaceful world. That’s why free(er) trade is a key to our primary vital interests: peace and prosperity.

Viscount Ridely deals at some length with non-tariff barriers because they are a huge problem. “Here,” he says. “is where the big battle is to be fought in future between two competing approaches … One, espoused mainly in the EU, is the prescriptive, rules-based system that specifies exactly how a product or service must be produced if it is to be allowed in. In the tradition of Roman civil law, this approach essentially prescribes the method as well as the outcome. China, too, increasingly works in this way, though its regulatory regime — “global standards with a Chinese character” — is something of a regulatory black box … [but] … Such policy is essentially agnostic about consumer welfare: it is driven by producer interests and revenue maximisation for government. Our challenge is to shift the world trading system towards a better, common-law approach, which is principles-based, outcome-focused, consumer-friendly. Because of our history and the nature of our economy,” he says, “Britain can be an effective champion of this challenge.

He explains that, “The issue boils down to defining the word “equivalent” as something other than “identical”. For the EU, the dominant approach has been harmonisation rather than mutual recognition: things must be done the same way everywhere within the single market. But outside, mutual recognition of outcomes is gaining ground: for example, between Australia and New Zealand, there is an agreement that “your agency judged this medicine or foodstuff safe, and that’s good enough for us”. Even the EU has accepted this approach of mutual recognition with other countries, although sparingly. This has to be the way to go. To paraphrase Deng Xiaoping, it does not matter what colour the cat is, so long as it catches mice.” This principle of “harmonization” should be included when Canada pursues free(er) trade with the CANZUK nations.

Matt Ridley concludes by says, and I agree 100%, again, that “Free trade works.” He quotes Adam Smith again, saying that: “you should never “attempt to make at home what it will cost [you] more to make than to buy . . . What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”

I hope the Conservative leadership jumps on Matt Ridely’s notion and runs with it.

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