Theresa May’s government and much of the British establishment is suffering from a severe panic at the thought of a “no-deal” Brexit and what it would mean for, among other things, British trade relations with the European Union.
Here, the United Kingdom has an opportunity to reclaim a very old — and very British — solution: unilateral free trade.
The United Kingdom has the power to write its own trade accord with the European Union — a trade accord consisting of two words: “Yes, please.”
The born-again mercantilists and daft neo-nationalists fundamentally misunderstand trade: The benefits of trade are the imports; the exports are the cost. Contemporary trade skeptics — and American nationalist-populists in the Donald Trump mode are not least among them — get it backward. They hear about “trade deficits” and, misunderstanding that term — it is an intentionally misleading one, after all — believe that our trading partners are somehow getting over on us. Difficult as it is to believe in the particular — that you’ve been victimized by your new Mercedes — it somehow feels plausible as an abstraction: They get $50 billion, and we get only $30 billion. Of course, they get only $30 billion worth of actual goods and services, while we get $50 billion worth.
Unilateral free trade may sound like a radical idea, but other countries have had pretty good luck with it, including one that may be of interest to the English: England. When the English rescinded the Corn Laws in the middle of the 19th century, they did not do so as part of a broad and reciprocal agreement with their grain-producing trade partners, some of whom — the French — they didn’t particularly like. They did it because the sensible English finally came to the sensibly English conclusion that English people would be better off as a whole if there were more food coming from more sources at better prices, even if that diminished the earnings of the relatively small cartel of big landowners who had benefited the most from anti-trade measures. Great Britain in fact grew vastly wealthy while maintaining trade arrangements that paid relatively little attention to reciprocity even in principle. British territories, notably Hong Kong, grew wealthy while following much the same model.
James Mill explained it this way:
The benefit which is derived from exchanging one commodity for another, arises, in all cases, from the commodity received, not from the commodity given. When one country exchanges, in other words, when one country traffics with another, the whole of its advantage consists in the commodities imported. It benefits by importation, and by nothing else.
This seems to be so very nearly a self-evident proposition, as to be hardly capable of being rendered more clear by illustration . . .
The case in which a country imports commodities which she herself is incompetent to produce, is of still more simple investigation. That country, or, more properly speaking, the people of that country, have certain commodities of their own, but these they are willing to give for certain commodities of other countries. They prefer having those other commodities. They are benefited, therefore, not by what they give away; that it would be absurd to say; but by what they receive.
England was an early advocate of multilateral trade agreements, too, notably King Henry VII’s Intercursus Magnus. Henry VII had played the mercantilist game with the Netherlands and discovered that his embargos left both countries worse off and that trade made both countries better off. Trade protectionism is punching the other guy in the face — with your face.
That was then . . .
The United Kingdom does not produce very many automobiles; at the moment, imports account for nearly 90 percent of the automobiles bought by British people. The United Kingdom is a major export destination for German manufacturers. All the U.K. government needs to do to enable British people to connect with the automobiles they want to buy — or the sneakers, or mobile phones, etc. — is: stand aside. Mercedes and BMW are very keen to sell cars to British buyers, who are in turn very keen to buy them. Putting a trade barrier in the way would amount to very little more than a sales tax on British consumers and a slight indirect subsidy to some British makers. German reciprocity is not required for the United Kingdom to avail itself of most of the benefits of free trade.
This is a position that most advanced countries already have accepted, in principle: Most advanced countries impose tariffs that are far lower than those they would be permitted to impose under their free-trade agreements and other international obligations. As economist Doug Irwin notes, the vast majority (about two-thirds) of tariff reductions that occurred in the great flowering of global trade between 1983 and 2003 were undertaken as unilateral measures — no reciprocity required or demanded. This not only benefits consumers, but also workers — even though some of them inevitably will be hurt by more effective competition. As Pierre Lemieux writes, this comports with the expectations rooted in comparative advantage:
Hourly compensation in manufacturing doubled in India from 2002 to 2010. A previously elusive economic take-off has benefited large groups of humankind. Extreme poverty dropped from 36 percent to 15 percent of the world population between 1990 and 2011. The liberalization of internal markets helped, but so did foreign trade.
For centuries, kings and sultans and emperors made great efforts at enormous expense to keep the trade routes open. If you had tried to explain to Henry VII that in 2019 all of the best produce not only of Europe but of the world would be brought to the United Kingdom, at the producers’ expense, and laid at the feet of the British people, and that the great concern of the time would be that the prices of these goods weren’t high enough, he’d be perplexed, and probably would wonder why he had been obliged to go to such great lengths (literal lengths: all the way to the Ottoman Empire) to secure imports of alum for the English textile industry.
Of course some British producers would be better off if Europe made itself easily open to British goods — and so would European consumers as a whole. The French and the Germans are smart enough to figure that out. So are the British — in fact, they figured it out in the 19th century.
Of course the United Kingdom’s decision to part company with the European Union ultimately will involve complex renegotiations of protocols and relationships of many kinds, and it might be better to have a formal free-trade accord if only because that would put some constraints on future leaders captive to populist anti-trade pressures. An orderly exit would be preferable to a disorderly one in almost every way.
But the United Kingdom has an excellent trade strategy in its pocket, just waiting to be used — one that requires no input from Brussels at all. Which is supposed to be the point of all this, isn’t it?