Monday, 9 July 2018

Swift Free Trade


Overheard in a pub in Painswick:

Chairman: "This weather is attracting a lot of swifts."

Hay: "Yes, but I don't think the swifts get the UK weather forecast in Africa."

Dis you watch the British Grand Prix? I'm certain those pit stops are psychic. The tyre changes are so swift you can't see them.

We were watching Countryfile last night and there was a face-off between someone from the Adam Smith Institute and someone from a farming lobby group, each arguing their case for and against free trade. The problem is that free trade is always presented as a binary issue - it's not.

Classical economics teaches us that free exchange works to produce the best results for all, whether the exchange takes place within one nation or across national boundaries. But this concept works only when the exchange is an equal one that occurs within a common framework of laws, customs, rules, and regulations. Economic competition conducted under the law of the jungle leads to chaos and failure; the price system becomes a guide to nothing that is sensible or tolerable.


Some things need to be protected for the long term, such as food security, strategic infrastructure and defence procurement (not pencils though). Some need short-term protection; nascent industries and those that are failing solely due to lack of investment in productivity-increasing technology. Some protectionism is required for no other purpose than to lower unemployment, as no electorate is going to vote for a government that sacrifices employment on the altar of the free market, no matter how much it increases the country’s GDP, as that additional GDP will only go to further exacerbate wealth inequality while jobs go to the wall.

Dropping tariffs in the face of dumping strategies is not a sensible approach – for reasons unknown, the UK government voted in the EU against the imposition of tariffs on cheap, Chinese steel, much to the chagrin of the Port Talbot steel workers; however, the EU went ahead with the tariffs and, as a result, Tata has invested in productivity improvements at the Port Talbot steel plant and saved Port Talbot from becoming a ghost town.

Similarly, inward investment is a double-edged sword – the drop in the value of sterling has meant that whole swathes of UK industry are now in the hands of foreign companies. One in four large UK businesses are now foreign owned, predominantly American, German, French and Dutch. Electricity supply and our railways are almost entirely foreign owned, and what is contributing to the lack of competitiveness of the UK steel industry? The price of electricity!

Foreign-owned infrastructure that remains in the UK is not so much of an issue - it can't be moved abroad. However, it can mean high consumer prices if monopolistic pressures come into play.

Another thing to bear in mind on tariffs is that they'er not always designed to lock out competition - if you adjust them to level any price advantage, then the only thing left to compete on is quality.

44 members of the African Union’s 55 members are hoping to inaugurate a massive, African Free Trade Area by the end of this year. Regional free trade areas are the way the world is going, and you can’t tell me than an African free trade area isn’t going to be protectionist.

I've just this minute heard Tim Martin - he of Wetherspoons - on Radio 4, advocating dropping tariffs on everything, worldwide. It's a ridiculous proposition for the reasons outlined above.


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