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?

The So-Called Single Market

Right, let's be clear. There's no such thing as The Single Market. The other EU members call it The Internal Market.

Now if you're no longer a member of the EU you are, by definition, no longer internal. Therefore you cannot be a member of The Single Market.

Scotland cannot remain in the EU because Scotland, as such, is not a member at present. Scotland cannot therefore remain in The Single Market when the UK leaves.

What matters, to both the UK and to Scotland, is not membership but free trade. The UK has offered continuing free trade to the EU. This means the UK has offered the EU exactly what Scotland has asked for.

It is nonsensical doublespeak to suggest that Scotland's voice is being disregarded.

Moreover, since we already enjoy free trade with the EU and have offered to continue it, it is up to the EU, if it is determined to act against its own interests, to erect the first tariff barrier. No-one is suggesting that the UK, or Scotland, should make the first move.

Meanwhile several powers currently held by the EU will revert to the UK and it will make sense for some of these to be further devolved to Scotland. Fisheries is an obvious case in point.

In the worst case scenario, the EU may choose to raise tariffs against the 15% of Scotland's trade that is conducted with it.

How by any stretch of economic logic does it make sense for Scotland to respond to such a piece of stupidity by leaving the UK Single Market which is responsible for over 60% of our trade?

The oil price has already halved. How poor are we determined to be?

So what's a Customs Union when it's at home, eh?

Journalists who have suddenly discovered the term customs union and who seem to think it differs from the single market have taken to asking politicians whether we can remain in one but not the other.

For those who may be confused:

(1) A Free Trade Area is a number of countries which sell each other goods without imposing tariffs, quotas or other restrictions on such transactions.

(2) A Customs Union combines a Free Trade Area with a Common External Tariff, effectively discriminating in favour of other members and against non-members.

(3) The EU Single Market combines both of the above with a common regulatory and standards regime enforced by the European Court of Justice.

Not only is there no advantage to system (2) over system (1), it is disadvantageous because it prevents members doing separate, advantageous deals with non-members.

The reason for having (2) tends to be the price you have to pay to get (1), since various individual members may want protection against specific non-members or their products. Rather than a complicated mishmash of bilateral deals you end up with the same external tariff against all outsiders.

Therefore the question at issue is not 'Can we manage to stay in the Customs Union?' but 'Might we be forced to stay in the Customs Union as the price of keeping free trade with The EU?'

True, The EU is at present our largest trading partner, but it is also a sclerotic low-growth market with a moribund single currency permanently on the point of collapse, to which threat the only reply to date has been more and more debilitating austerity.

On top of this the single market regulations stifle innovation and investment in cutting-edge technologies which is the true remedy to stagnation.

The only thing we should want from The EU is free trade (in services as well as goods.) Having the government pay to get this (out of taxpayers' money) is futile; you might as well let the taxpayers pay tariffs directly.

Being cut off from the ability to strike deals with non-members defeats the whole objective of leaving the EU. It guarantees a worse position than we had before Brexit.

But as I've pointed out before, we already have free trade with the EU. We are not going to start a tariff war, since it's not in our interest. It's not in their interest either but they might still do it out of pique. Nobody would accuse the Present EU administration of acting sensibly. If and when they do raise tariffs, we decide how to respond.

Note to all those demanding a plan - You just read the only sensible plan. Until the EU decides what, if any, tariffs it will impose, NOTHING WHATSOEVER needs to be done or indeed can be done in response.