22 December 2020

The party of Thatcher must resist the siren call of protectionism

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“We rely on imports too much,” tweeted Jeremy Corbyn yesterday. “Let’s grow and make more at home.”

I’m making it up, of course. These were the words not of Mr Corbyn but of Sir John Redwood, twice a candidate for the leadership of the Conservative Party. Yet they do bear a resemblance to the views espoused by Mr Corbyn as Labour leader in 2018, when he demanded that we should “build things [in Britain] that for too long have been built abroad”. Hence my perplexity.

From wherever on the political spectrum the argument comes, it’s a mistake to suppose that importing goods, services and agricultural produce is a national weakness and that greater self-sufficiency would be a mark of patriotism. And it’s especially odd to hear this from a politician who served as a minister (and before that, as head of the No 10 Policy Unit) under Margaret Thatcher. The ideas of economic liberalism and openness are not the exclusive preserve of any one party but (though I didn’t vote for it at the time) the Thatcher government advanced them in important respects. Their merits need to be reiterated across the political spectrum and in every generation.

Conservatism is a broad tradition. It certainly encompasses the belief that social cohesion supersedes individual choice. As the late Roger Scruton expressed this principle in his book Thinkers of the New Left (1986): “Freedom consists, not in the absence of domination, but in the presence of a domination congenial to those contained by it.” And in the economic sphere, it includes the philosophy of the German-American thinker Friedrich List, who in his seminal work The National System of Political Economy (1841) argued that import tariffs were an investment in a nation’s productive potential.

But these are not recognisable as Thatcherite views – by which I mean the principles that Mrs Thatcher applied in office, as opposed to those attributed to her by her political associates and confidants (possibly faithfully) after she left Downing Street. The abolition of exchange controls and the completion of the European Single Market in a legally binding treaty were her government’s handiwork. These were great liberalising measures that contributed to economic advance after the crisis-ridden 1970s. Between 1980 and the financial crash of 2007-09, world output doubled whereas international trade increased three-fold.

There is on some sections of the right a belief that trade protectionism is valuable in its own right. It’s a position volubly expressed by President Trump on Twitter: “I am a TARIFF MAN. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.” And in a less dramatic form, George Eustice, the Defra secretary, has suggested a role for tariffs in the event of a ‘no deal’ Brexit. Speaking to the BBC last month, he claimed that British farmers would be unaffected by this outcome as the UK is a net importer of food and would impose its own tariffs on dairy imports.

It is, of course, not overseas producers who pay import tariffs but domestic consumers and businesses who use imported components. That’s the point of them: to switch consumption from imported to domestically produced goods, services and agricultural produce. And even in the case of politicians who aren’t explicitly urging this measure for its own sake, the idea of import substitution – which Sir John is clearly advocating – is based on the same principle.

Replacing imports with domestic production has an intuitively patriotic appeal but in practice it means that living standards will suffer. Domestic consumers will pay higher prices, businesses’ costs will rise, and scarce resources will be diverted to less efficient uses. Some jobs (in, say, fruit picking) might be created for domestic workers but others would either be destroyed or not be created, thereby leaving aggregate employment broadly unchanged. Conversely, the free flow of goods and services (and investment and labour) across national borders will generally raise real incomes in both economies, by allowing specialisation.

Even here, there’s a persistent misapprehension that you’ll often find among politicians (across the ideological spectrum) and some business people. It’s this stubborn conviction that, while free trade may be a good thing in principle, imports damage welfare whereas exports are a benefit. This is not correct. Imports expand welfare, improving the range and quality of what’s available to consumers. Exports are what we pay in order to gain those benefits. If the British economy’s imports exceed exports, this is is not a weakness. All it shows is that investment opportunities exceed domestic savings. If politicians in Britain or the US wish to narrow or eliminate a current account deficit, then import tariffs or quotas won’t achieve this goal, even supposing it were desirable (which it isn’t).

Political parties and movements are a coalition of views and it doesn’t do to seek out anything more than approximate philosophical coherence within them. But recall that when Mrs Thatcher was Conservative leader, it was a left-wing position to stress managed trade. In the sterling crisis of 1976, which caused the Labour government to seek an IMF loan in return for public spending cuts, the cabinet debated imposing restrictions on imports. This was the strongly expressed view of Tony Benn, with the left’s so-called Alternative Economic Strategy, and also of Tony Crosland, the great social democratic thinker, who argued for a system of import deposits. Both of these positions were fanciful and would have been destructive, and fortunately Denis Healey, as chancellor, got his way in cabinet.

You’d have thought that, after the ructions in economic policy in the 1980s, the Conservative Party would understand the snare of raising barriers to commerce. I’m dismayed that this aspect of policy, which was painfully learnt by both parties a generation ago, is being lost.

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Oliver Kamm is a columnist and leader writer for The Times.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.