10 November 2016

A new trade treaty for a new world order


On both sides of the Pond now, the unregarded masses have risen up and given the Establishment a thorough slapping. But the triumph of Trump does provide something of a problem for Brexit. Until now, Liam Fox has been going around telling all and sundry that we can just sign free trade treaties with everywhere – but we’re not going to be able to do that with the US now.

It’s not that we’re going to be at the back of the queue – there’s not going to be a queue at all. The TPP and TTIP are presumably dead in the water and no one is going to be able to squeeze another free trade treaty out of The Donald.

So that leaves us rather alone, out of the EU.

So we should do what we did in 1845 and simply declare unilateral free trade. It is no coincidence that economists insist that real wages only started rising in the 1840s after the Industrial Revolution. Living standards rose in this green and pleasant land once those working in the satanic mills could buy cheap imports. Such as affordable bread. In turn, we can cut our own import tariffs as we see fit and thereby make food, or any import, cheaper if we should so wish.

All this serves as a timely reminder of the economists’ point about trade – imports are the reason we do it. Exports are just the drudge work that has to be done so that we can afford them. The entire point is to be able to consume those products and services slaved over by someone somewhere else in the world.

As Adam Smith pointed out, the aim and purpose of all production is consumption. We work for an income so that we can buy things; we export our labour from our households in order to be able to import that produced by the labour of others.

In this sense, a country, an economy, is absolutely the same as a household. We export the labour of Britons – encapsulated in goods or services – not because we are trying to be nice to foreigners, nor because it necessarily makes us richer. We do it purely and solely so that we can buy stuff produced by those people we are selling to. It is gaining access to their imports which is the purpose of the exercise. That’s why it doesn’t make sense for us to tax ourselves on the buying of the very things we want.

Import tariffs simply do not make logical sense.

Which means we can make Dr Fox’s job very much easier with this draft trade treaty:

  1. There will be no tariff or non-tariff barriers on imports into the UK.
  2. Imports will be regulated in exactly the same manner as domestic production.
  3. You can do what you like.
  4. Err, that’s it.

The international situation today does have resonances of a later time – America becomes isolationist, the continent labours under a German-dominated political order and economy… Regardless, we must work on, alone – much as last time. Alone with only the rest of the world with us. Free trade with 6.2 billion, instead of 7 billion people.

Such a burden for us. And as then, so now – our finest hour is yet to come.

Tim Worstall is Senior Fellow at the Adam Smith Institute.