Unilateral Free Trade: Desperate Brexiters Stumble on Another Fine Mess
With each passing day the list of supposed benefits Britain will get from leaving the EU becomes shorter and shorter. In a recent interview, the Tory peer Lord Harris claimed that one of his principle reasons for promoting Brexit was that ‘I just feel we would be better off out of the EU.’ Unfortunately, gut instinct is not a great way of building economic and trade policy.
One idea that has begun to make the rounds recently is supposed ‘unilateral free trade’. This is proposed by ‘Economists for Brexit’ who are to the economic community what climate change deniers are to scientists. Their idea is simple: to make Britain attractive, boost flow of imports and share of trade, the government should unilaterally remove all tariffs to trade, even if its trading partners don’t do the same.
Relying on WTO would mean that any loss of trade would be made up elsewhere, as other countries would queue up to do advantageous free trade deals. While there is some logic to their arguments, it is actually built on extremely speculative and shallow foundations that would never stand up to reality. It sounds very convincing but comes across as a “killer argument” merely intended to silence doubting Remainers.
International trade is no longer just about tariffs
Extreme free traders often claim to be the sensible and forward-thinking Brexiters. Actually, they are arguably the most nostalgic of the lot, harking back to an age when Britain was a manufacturing giant. Unilateral free trade only makes the most sense when you are the pre-eminent economic power. In the 1780s, Britain began switching from mercantilism to free trade; over the next century, it slowly became the biggest proponent of free trade as it got richer: Britain, as the first industrial economy, could dictate the terms of trade to the markets.
Now Britain has lost its pre-eminence, UFT would mean we would largely say goodbye to our manufacturing and agricultural sectors. This could make narrow economic sense but would be politically difficult. Fishing makes up 0.2% of our GDP, but few Brexiters voted to preside over the demise of our long agricultural and fishing tradition.
By abandoning small sectors, Britain would become overly specialised, relying on one or two key services, most likely financial. I can see now how happy everyone would be for farmers, fisherman and factory workers to be largely displaced by an even greater army of bankers.
International trade is no longer just about tariffs. The reason we talk about chlorinated chicken in terms of trade deals is that common health and safety standards are another ‘barrier’ to free trade. UFT would see a reduction in many rights and standards we take for granted.
There is a greater fallacy: the idea that UFT under World Trade Organisation rules will benefit the UK is sheer nonsense. No country can just decide what its ‘rights and obligations are’. Every country needs to arrange a schedule of concessions of goods which needs to be agreed by all 160 members; as a result the EU and other members hold the power.
Julian Braithwaite Britain’s ambassador to the international institutions inGeneva has claimed ‘every member will have an opportunity to raise any issues or concerns before we proceed’. This could mean Britain would be in danger of ‘death by a thousand cuts’. Most will be happy with a 0% tariff, but what about WTO members such as Argentina, who probably cares more about the sovereignty of the Falklands than whether it can sell coffee tariff free.
That we simply ‘lodge a zero tariff schedule with the WTO’ and then ‘negotiate better bilateral deals’ is naïve and simplistic. Why does a 0% tarriff make us better at negotiating trade deals? If we have single-handedly disarmed ourselves of one of our biggest trade weapons, why would we suddenly get better deals? We would actually have lost, not gained, trade influence as a result.
What is more likely to happen is that countries will extract more concessions for further deals, for instance on immigration. India has already talked about the need to liberalise migration laws. Ironically, Brexit could mean more not less immigration; even if we have ‘control’ over it.
More and more countries are mimicking the EU
UFT intends that any loss of EU trade will be naturally made up by markets further afield. This is classic belief in the guiding hand of the market. It ignores that Adam Smith, who famously developed the idea of the ‘invisible hand’, himself said the best trade was that done with neighbours. The supposed ‘gravity law of trade’ is unfortunately real: goods are still mostly traded with neighbours; other countries either do not want additional costs or have better and closer alternatives. For services (which are most of our economy) it is even worse, with many services just not being attractive in international trade terms the further afield you go.
More and more countries are mimicking the EU. Trade will become even harder as inter-dependence increases within more localised areas. Britain is currently the only country who is putting up barriers with its nearest neighbours while pursuing markets that make no sense or show no signs of replacing lost trade: it will mean 11% of our current trade replacing any losses from our current 61% trade with the EU. The ‘economists for Brexit’ paper seems to assume that such realities do not exist. UFT would not compensate this: distance still matters.
UFT may make GDP higher, as Britain becomes a specialised economy with few restrictions and barriers like Singapore. It will not make everyone better off though.
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