Better Together

Trade – Source: Kyle Ryan on Unsplash

In the beginning.

When animals and homo sapiens were emerging from very early life forms, millennia ago, nature evolved male and female separately so that creating offspring would need two parents. This contributed enormously to their security and life chances. Later, humans formed groups and tribes, which further improved their safety and well-being, as the benefits from cooperation and the division of labour were realised.

This process continued, with the emergence of nations, and then of money. If you were good at one trade, such as tailoring, you could sell your products and buy what else you needed from someone else who farmed the land or built houses. Everyone benefited.

International trade, but the rich protects their own advantage.

Then came international trade. Trade is a form of cooperation. Tin from Cornwall went to Rome. Pottery from Europe came to Britain. Along with trade came exchange of people, professions, know-how, language and customs. Literacy and religion from Europe. Much of the trading was not entered into freely, but was enforced, such as slave trading, Viking raids, and Saxon and Norman invasions. British Empire-building followed this pattern of enforced or coerced trade.

By the 18th century, the prevailing view among trading nations was mercantilism, the intention to obtain a positive balance of national trade, such that your total exports exceeded your total imports. This suited the imperialist doctrine of the time, but it needed quotas and tariffs and other mechanisms to enforce it, which were ultimately self-defeating, such as the Boston Tea Party. In the early 19th century the import of cheap corn from America reduced the profitability of UK producers, mainly aristocrats and landed gentry, and so the Conservative Government under Lord Liverpool imposed protectionist price barriers on corn imports making them uncompetitive with home production. Prices of home-produced corn products rose, preserving aristocratic profits but causing widespread hardship and famine among workers. This was all in keeping with the class system, the undemocratic Parliament, and the system of values prevalent at the time.

Free trade benefits all.

The economist Adam Smith had earlier explained how, in theory at least, free trade, i.e. trade unencumbered by quotas and tariffs, was beneficial to both producers and consumers. And in the early 19th century, the economist David Ricardo published his Theory of Comparative Advantage which argued that if one country produces the same goods as another country, but at a lower cost, it is still beneficial to both countries to trade. Ricardo is now prominently associated with the arguments for the net benefits of free trade and the detriment of protectionist policies.

Dismantling trade barriers throughout the world.

In 1851, Robert Peel, founder of the modern Conservative Party, joined forces with the Whigs, and after 36 years repealed the Corn Laws, bringing in cheap imported corn and relieving the hardships caused by the high price of corn and the potato famine in Ireland. There then followed, until the Depression years of the 1930s, great increases in international trade.

However, despite the many economic benefits deriving from free trade, there are many potential or actual problems. For example, big countries can bully smaller ones in various ways, under-developed countries may want to develop their industries by protecting them from imports while they grow, countries may want to protect certain strategically important industries when they don’t want to rely for important products on possibly unreliable sources of supply, and countries which over-produce for internal reasons may want to dump their excess production on other countries at artificially low prices.

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After the Second World War, the General Agreement on Tariffs and Trade (GATT) was established, to monitor and regulate international trade and to reduce unfair or uneconomic practices such as tariffs, quotas, subsidies and dumping. This was succeeded by the World Trade Organisation (WTO) in 1995, which now represents 98% of world trade. World trade has grown enormously, at an average annual rate of 6%, over the past 70 years. 

The WTO provides a framework organisation which helps trade flow smoothly, freely and predictably, by administering trade agreements, acting as a forum for trade negotiations, settling trade disputes, reviewing national trade policies, building the trade capacity of developing economies, and cooperating with other international organizations. It has 164 members.

Theoretically, the best trade deals are worldwide, and for many years the Doha WTO rounds attempted to broker such deals. After many years of effort, it acknowledged that the difficulties were just too great, and it was finally wound up in 2006, with its residual affairs taken over by the WTO. Politics and Economics are in constant tension, sometimes beneficially, sometimes in opposition. There are many recent examples of political necessities over-riding economic preferences for free trade. Sanctions against Russia for a variety of international misbehaviours, sanctions against Iran to bring pressure to bear regarding Iran’s nuclear capability, sanctions by USA against China regarding spying and other misbehaviour. 

The development of Regional Trading Blocs 

Given the failure of Doha, the international preference now is for regional trade groupings, such as the EU, NAFTA/USMCA, ASEAN, RCEP and CPTPT, although these regional groupings do have the disadvantage of having common external tariffs and therefore being protective against non-members. These all vary according to their scope and degree of integration. The EU, which began as six nations as the European Coal and Steel Community (ECSC) after World War 2, evolved into perhaps the most ambitious, successful and deeply integrating of them all, and requires a considerable degree of political agreement amongst the member states as a consequence. This agreement is being tested at the moment, with both Hungary and Poland refusing to ratify the EU budget because it is linked to membership conditions related to the Rule of Law. Most of the other regional trade groups are less integrating but nevertheless have agreements which go substantially beyond the simple process of transporting goods, for example in services, finance, investment, country of origin rules, intellectual property right rules, environmental, health, standards etc.

The UK retreats from the most comprehensive trading bloc in the world and threatens its own unity.

While the rest of the world is busy forming new, larger and more comprehensive trading groups, the United Kingdom has left the EU, and is currently negotiating a late, last-minute deal which will probably be just a pale shadow of the arrangements which full membership provided. Still, it will be better than nothing, if the UK can actually make up its mind to sign it, which currently seems in doubt. Because of their complexity, trade deals normally take between eight and twenty years to reach a conclusion. In 2017 the UK Government under Theresa May triggered article 50, which set the clock ticking on two years to conclude a deal with the EU on the basis of the UK being outside the bloc. This must rank as one of the biggest single idiocies amongst the whole raft of idiocies which Brexit unleashed.

Amongst the biggest casualties of Brexit is likely to be the four-nation Union itself. It surely won’t be very long before Northern Ireland joins its southern neighbour, Ireland, in a United Ireland. This would make economic, political and considerable cultural sense, though will cause displeasure amongst the Protestant minority in the North. However they brought this on themselves to some extent when the DUP supported the May Government in return for their electoral bung in 2017.

Scotland faces a much bigger challenge, because the opinion polls there show that Independence supporters have grown to well over 50% of the population since Brexit, and the advent of the very unpopular current Conservative Government.  The UK Brexiteer Government will only be accused of hypocrisy if they deny Scotland its referendum on Independence when they were so demanding of UK separation from Europe themselves. However, the case for Scottish Independence is mainly an emotional one, whereas the political, cultural and economic aspects are not favourable. In political terms, Scotland would be a very small player in Europe, and the EU do not favour breakaway movements. Scotland would have little influence alone on EU decisions and would be mainly a rule-taker. Economically and culturally, the ties with England are strong. The SNP may be best advised to use its current strong political leverage to negotiate better or more comprehensive terms for its devolution agreement. Better Together won in the 2014 Referendum and remains true today, I think.

The losses to come from Brexit have been known about for a long time, but they have mostly not been felt yet. After December 31st they will start to be felt, and the losses will mount and be increasingly plain over the coming years. There are unlikely to be many serious compensating advantages.

Government has explained its “Global Britain” strategy but has not implemented much of it. Let us hope however that it does not take 36 years before the penny drops, the lessons are re-learned (Better Together) and the UK re-joins the EU.