During the referendum campaign on the UK leaving the European Union, there was much debate about international trade. The remainers said that by leaving, we would be isolationist “Little Englanders” impoverishing ourselves in a siege economy cut off from the world. Brexiteers responded that trade with the UK would still be in the EU’s interests—while with an independent trade policy, unshackled by the EU’s Customs Union, we could open up trade with the rest of the world. A vision of “Global Britain.” “Choosing the open sea,” as Winston Churchill put it.
At this point, Barack Obama turned up warning that Britain would go to the “back of the queue” for trade deals with the US if it votes to leave the European Union. The message: we would become lonely outcasts. The comments backfired. First of all, the foreign interference in our referendum was resented. But there was also suspicion that it was a put up job by our Government. Had he been told what to say? Wouldn’t the Americans have said “back of the line” if using their own words?
Fast-forward nine years, and we are at the front of the queue. We have a trade deal with President Trump ahead of the EU, China, and others. The EU inevitably takes longer as that lumbering trade bloc has to secure agreement with all its member states with their own vested interests.
So the deal with the US is a Brexit-enabled achievement, but celebrations are muted. It can hardly be called a “free trade deal.” There is a 10% “base” of tariffs on UK exports to the US. It is more a damage-limitation exercise. For example, tariffs on UK cars to the US will drop from 27.5% to 10% for a quota of 100,000 vehicles.
The UK currently charges tariffs of up to 50% on ethanol imports from the US. It is used to make beer, among other things. The tariff goes down to zero. Cheers!
Overall, it’s a mixed picture. Instead of disastrous disruption to trade, it will merely be impeded by roughly the same extent overall as under the Biden administration—higher tariffs here, lower tariffs there. The UK/India trade deal agreed to a few days earlier was a much clearer breakthrough for free trade.
Trump sees trade as involving winners and losers. This is deeply misguided. Trade is mutually beneficial. That is why we engage in it. People should be left alone to get on with people both within their own countries and from other countries. The idea is as old as the United States. Adam Smith set out the great advantages of specialization and the division of labor in his book The Wealth of Nations, published in 1776. He gave the example of the pin factory—comparing the output with 18 workers each doing a specific task, rather than every worker laboriously going through each process himself to make a pin. Nobody can seriously refute the logic. Nobody can really pretend that we would be better off as cavemen in a subsistence economy.
Yet the fallacy persists, that government meddling in international trade could be advantageous to one country or another. Trump is not alone in this mistaken belief.
Kemi Badenoch, the leader of the UK Conservative opposition, said that the British have been “shafted.” This was in response to figures showing that the general level of tariffs the UK will impose on the US will fall from 5.1% to 1.8%—while the general level of tariffs the US will impose on the UK goes up from 3.4% to 10%.
But imposing the highest tariffs never makes you the winner. Rather than all the delay, complexity, and chest-beating over trade deals, it would make more sense to have unilateral free trade. Scrap tariffs and quotas and allow “mutual recognition” of standards—with labeling of the country of origin to allow the consumer to choose. Countries putting on trade restrictions are engaged in acts of self-harm.
It is said that without reciprocal deals, exporters lose out. Of course, it would be better if all nations agreed to free trade. But in reality, the unilateral approach is the most effective way for exporters to compete, too—even where the example is not followed. This is because with such interdependence, the materials used to make something come from all over the place. Leonard Read’s story, popularized later by Milton Friedman, makes the point powerfully: all the things needed to make something as simple as a pencil come from around the world. That insight becomes even more true as the decades go by. Reducing tariffs on imports reduces the cost on the inputs that exporters need.
The UK/US trade deal will mean zero tariffs on UK steel and aluminum exports to the US. It has not been confirmed whether the same will apply to US exports of steel and aluminum to the UK, but that is expected. Will it not help our manufacturing industries compete around the world if they have the widest choice of steel and aluminum, the best quality needed for their requirements at the lowest cost? Allowing this is not a “concession”—it is basic common sense.
Lord Hannan, a Conservative peer and free trade champion, commented:
It so happened that the trade deal was announced, not just on the 80th anniversary of VE Day, but at the very hour that Winston Churchill had declared the final defeat of Nazi Germany. Freedom rested then, as it has since, on the alliance of the two greatest English-speaking democracies. For most of the intervening 80 years, the Atlantic alliance enjoyed cross-party support on both sides of the Atlantic. Let’s not jeopardise that consensus now.
You don’t need to take economists’ word for it that free trade leads to prosperity. Just look at the stock markets plunge when tariffs are imposed and leap when they are lifted. The public seems to be getting the message—polling suggests that support of the benefit of free trade has increased. The more countries that take the enlightened path, the better for all of us.
