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Free trade's benefits
From Matt Ridley.
"But the point about free trade is and always should be that it
is good for consumers. “Consumption is the sole end and purpose of
all production”, said Adam Smith. The genius of the Corn Law
radicals was to turn the debate upside down and give the consumers
a voice. Between 1660 and 1846, the British government passed 127
Corn Laws, imposing tariffs as well as rules about the storage,
sale, import, export and quality of grain and bread. The
justification was much like today’s opposition to TTIP: maintaining
our supposedly high standards against foreign, cheapskate
corner-cutters.
In 1815, Parliament banned the import of all grain if the price
fell below 80 shillings a quarter — to protect landowners. Rioters
vandalised the house of Lord Castlereagh and other supporters.
David Ricardo wrote a pamphlet against the laws, but in vain. It
was not until the 1840s that the railways and the penny post
enabled Richard Cobden and John Bright to stir up a successful mass
campaign against the laws on behalf of the working class’s right to
buy cheap bread from abroad if they wished.
Cobden did not stop there. Elected to parliament but refusing
office and honours, this pacifist radical was as responsible as
anybody for accelerating global economic growth. He persuaded
Gladstone to abolish many tariffs unilaterally, and personally
negotiated the first international free trade treaty in 1860, the
so-called Cobden-Chevalier treaty with France, which established
the unconditional “most-favoured nation” principle, leading to the
dismantling of tariffs all over Europe. “Peace will come to earth
when the people have more to do with each other and governments
less,” he said.
Only when Bismarck began rebuilding tariffs in 1879 did the tide
begin to turn, and competitive protectionism slowly throttled free
trade, eventually contributing to half a century of war. Britain
held out longest, enacting a general tariff only in 1932 under
Neville Chamberlain as chancellor. Trade barriers undoubtedly
helped precipitate war: they shut the Japanese out of resource
markets that they then decided to seize by force instead, while
Germany’s Lebensraum argument would have carried less force in a
free-trading world.
The argument for free trade is paradoxical and much
misunderstood. Free trade benefits consumers because it is the
scourge of expensive or monopolistic national suppliers. It
benefits both sides: yet it works unilaterally. Your citizens
benefit if you let them buy cheap goods from abroad, while
foreigners are punished if their government does not reciprocate.
This creates more demand for local services and hence more growth
and jobs in the importing country.
Contrary to what most people think, therefore, it is imports
that bring the greatest benefit, not exports — which are the price
we have to pay to get the imports. At the centre of the debate lies
David Ricardo’s beautiful yet counterintuitive idea of comparative
advantage — that it will always pay a country (or a person) to
import some goods from another, even if the first country or person
is better at making everything. Truly free trade cannot be a
predatory phenomenon.
But surely all these Cobdenite arguments are old-fashioned and
irrelevant in a world of labour standards, environmental
protections, the internet and so forth? Not so. They are as true
today as ever, and thank goodness we have at least one political
party prepared to make them. The Liberal party used to champion
free trade, as did the Manchester Guardian, but these days both
spout the fearful mercantilism of the pre-Peel Tories.
The trade barriers in the Atlantic cost consumers on both sides.
Mr Shapps pointed out last week that every American pair of jeans
costs you 12 per cent more than it should; every British pint of
beer costs Americans 157 per cent more than it should. Americans
are forbidden by law from buying British lamb or venison. TTIP is
set to tackle some of these absurdities, to reduce non-tariff
barriers, harmonise standards and give people more freedom to buy
from whomever they choose.
TTIP’s opponents are particularly horrified that it includes a
provision to let large and small businesses sue foreign governments
for shutting them out of investment in their countries. My worry is
that this provision may not go far enough — to enable consumers to
have redress against governments.
As a book called A Time for Choosing from the Free
Enterprise Group of MPs will argue, if there is one country that
should be able to benefit from freer trade it is Britain with its
widely spoken language, financial services, management and business
services, software and creative industries, not to mention its
Premiership football, Scotch whisky and boy wizards, all of which
we can sell to the world in exchange for movies, fruits and gadgets
that others are good at producing.
In an ideal world, every citizen of Planet Earth would have the
freedom to buy and sell from every other, without regard to
nationality, and free trade agreements like TTIP would not even be
necessary."
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