Idea of Unilateral Free Trade Sent Commentariat into Spasms

You would have thought the pundits with a pretence to economic authority* would be a bit more modest after joining in with Project Fear and predicting all manner of calamities the day after the Brexit vote. Remember 70% of economists predicting the UK would be in recession by last Christmas?

The usual suspects have gone apoplectic at the idea of unilaterally introducing zero tariffs. The EU’s Common External Tariff comprises 12,651 different taxes and quotas imposed on goods from the rest of the world. This is what the Customs Union amounts to in reality, a protectionist barrier to free trade with the 162 countries outside the EU. Don’t fall for the hype that it reduces trade barriers. 

The surprise is that some self-identified free traders have had a spasm about the IEA’s call for, err, free trade. Alan Beattie in the FT says it pains him as a free trader to say it, but…

The theory is fine as far as it goes, which is to say a wonderland, or two wonderlands, of competitive markets where technology is fixed and it is quick and cheap to move capital and labour from one sector to another. In the real world where the goods sold across borders become ever more sophisticated — and where services take a growing share of world trade — regulations are generally more important than tariffs. 

We live in wondrous times, has it ever been easier to move capital quicker and more cheaply? Labour is also in plentiful supply and sourceable globally too. This is to be fair not his main argument, regulatory barriers are he says the real problem in that unharmonised regulations are the main barrier to trade:

It’s an unpleasant thing for a free-trader to accept, but these days, to trade is to regulate — or, for most countries, to accept regulation. When the UK is exporting to behemoths like the EU and the US, it will need either a bureaucratic process to show it is meeting the rules of the destination economy or to sign a deal trying to get its own standards recognised instead. The idea of pursuing unilateral free trade is not absurd. As it happens, it has delivered some of the biggest advances in liberalisation in emerging markets over the past few decades. But pushing it as a reason for the UK to eschew future trade deals after Brexit in an increasingly sophisticated and regulated economy shows a serious dislocation from reality.

British exporters manage to trade with most of the world already without state negotiated trade deals. That is the existing position with most of the world, Brexit or no Brexit. Trade happens without international agreements or harmonised regulations. That won’t change on the day Britain Brexits…

For example the UK has no trade deal with the USA. Yet they buy British made Jaguars and Rolls Royces as eagerly as Brits buy Teslas, despite some important product differences, like where to put the steering wheel. Products are sold all over the world in different local packages with instructions in different languages running on different power supplies. Computers have different keyboards everywhere. Manufacturers cope. Traders localise their products without regulatory prompting if they want to make a profit. Regulatory barriers don’t halt trade, they just complicate it. Have some faith that exporters can cope. Consumers will love the lower price competition…

*Yes, Guido is aware of the irony, however he was right about those economists, and put his money where his mouth was...




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