Free Trade versus Protectionism

Any set of circumstances will advantage some and disadvantage others, likewise any changes in circumstances. We can always find examples of those who are disadvantaged by change, but we do not, if we are wise, attempt to ban the development of motor cars in order to protect the livelihoods of stablemen and wagon builders.

Protectionism is in no-one’s long-term interest. Even when it is the collective protectionism of a number of advanced economies it is ultimately damaging to the optimum allocation of resources and hence to standards of living. Free trade with as much of the world as possible is in the UK’s best interest.

Right now the EU’s protectionism does temporarily benefit some producers but most of them are not in the UK. This is why, as a mainly service-based economy, we buy manufactures and agricultural products expensively from the EU instead of cheaply elsewhere and have a major trade deficit with the EU which does not reciprocate with a genuinely-free market in services.

Already the EU accounts for a rapidly diminishing minority of our trade. We enjoy a surplus in our growing trade with the rest of the world. The EU is slow-growing by world standards. Can anyone explain why it is sensible on a macroeconomic basis to remain tied to the shrinking, deficit-returning section of our trade to the disadvantage of the growing, surplus-returning section? President Trump, for example, has correctly highlighted the problems the Chequers proposals present for a trade agreement with the USA, our largest single market.

The point is that tariffs, in general, are not very important today as barriers to trade, though there are always specific exceptions to the rule of course. However non-tariff barriers are important and it is this which is at the heart of the EU’s protectionism. The EU rulebook is process-driven, not standards-driven. In other words, it is backward-looking and hostile to innovation. Such rulebooks can never keep up with technology and in the EU’s case are actively pressed to resist change by reactionary lobbyists.

The negotiations with the EU have long since passed the point where a deal could be mutually advantageous. It’s now all about preserving the EU by holding back the progress which the UK would be able to show once freed from the shackles. It is not in the UK’s interest to pursue the Chequers proposals or anything likely to flow from them.

Protectionism always has its advocates because it can yield temporary political gains to the protector. Free trade, by contrast, can yield mutual economic benefits to all participants. We will get good deals because it’s in the interests of other countries to give us good deals. It would even be in the interests of the EU, except that they prefer to protect their federalist agenda over their citizens’ welfare.

Remember that the UK is a service-based economy and the EU 27 are mostly not. The EU has been spectacularly unsuccessful in negotiating service trade deals, probably because its negotiators neither understand nor care what is needed. Switzerland etc. do perfectly well as standalone negotiators. This is because they do understand the needs of service-based economies, i.e. their own! The UK is the world’s sixth economy. Why can we not do what these other independent countries can do?