‘Brexit could put 1.7 million people into extreme poverty’ is the Guardian‘s alarming headline of the day, based on a new report from the German Development Institute on what our leaving the EU could mean for the developing world.
In fact, the real message from the GDI is that if we don’t tax ourselves too heavily after Brexit, we’ll be better off, as will people in poor countries. It follows, not unreasonably, that we ought to avoid over-taxing ourselves.
The background here is that the European Union offers a certain amount of tariff-free access to the Single Market to the world’s very poorest countries. It’s a policy based on the sensible idea that the best way for the poor to get richer is to sell us the things they make, so why put barriers in their path to doing so?
As we leave, such arrangements cease to apply to the UK as an export destination, which would mean erecting tariff barriers to exporters where previously there were none.
We Brits tend to be charitable people: not only does our government send more aid than any other, but our citizens send more in charitable donations too.
There would be little support for a trade policy which clobbered exporters from already poor countries. The answer is perfectly obvious – we should simply not charge tariffs on imports from those countries.
This has a useful double effect. If we don’t tax ourselves for buying foreign goods then those foreigners get richer. But British consumers will also be better off, because the cost of tariffs are ultimately born by people inside the tariff barriers in the form of more expensive imports.
We’re better off, they’re better off, voluntary trade is mutually beneficial, so why wouldn’t we do this? Even if you are not bothered by the case for reducing global poverty, it’s a policy that will enrich this country as well.
The argument proffered against this sensible course of action is that under the World Trade Organisation’s rules if we drop tariffs for some then we’ve got to drop them for all. This is what the Most Favoured Nation rules mean. If we allow, say, Cambodian t-shirts to enter the UK tariff-free, then we have to allow t-shirts from all other WTO members in tariff-free as well.
This is put forward as if it is some clear and obvious argument against removing tariffs. Yet, if that course of action makes both sides richer, why wouldn’t we want to pursue it?
It’s not as though we don’t have ample historical precedent here – after all, in the 19th century we abolished the protectionist Corn Laws. Tariff-free access to the UK market started in 1846, which was about the time that real incomes started their vertiginous rise in the UK. It’s not just some theoretical argument that unilateral free trade ought to benefit us – we have empirical evidence that when we have fought off vested producer interests, it has been good for the country. It ought to be uncontroversial that unilateral free trade is a sensible position to adopt.
The final argument against unilaterally removing tariffs is that we will lose one of our negotiating levers with the EU. Now, it’s entirely true that the past 70 years of post-war tariff and trade negotiation have operated on this rather bizarre basis. “Yes, we know, tariffs make us poorer, but we’ll only stop making ourselves poorer by reducing tariffs, when you stop making your people poorer by reducing your tariffs. This is self-evidently a ludicrous manner of doing things, but that’s how the politics has worked these decades.
The British economist Joan Robinson put it neatly when she said: “Even if your trading partner dumps rocks into his harbour to obstruct arriving cargo ships, you do not make yourself better off by dumping rocks into your own harbour.”
One of the great advantages of Brexit is that we will be able to determine our own trade policy. While much has been made of striking trade deals around the world, even without those agreements we have the chance to make ourselves and the rest of the world richer by simply abolishing tariffs. If even the Victorians managed to get this right, then why can’t we?
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