By Graeme Leach
Economists for Free Trade was re-launched this week by 16 of Britain’s leading economists to promote the case for true free trade, with zero tariff and non-tariff barriers (note this doesn’t mean zero standards) on imports, in the wake of Brexit.
In the wake of the General Election result, we feel there is a need to yet again help the public understand just how important true free trade is and would be to future prosperity.
Here are 10 reasons true free trade is the key to making Brexit a great success:
1. The government, opposition and most of the media still don’t “get it” with regard to the purpose of trade policy. The ultimate aim of all economic activity is consumption. The number one priority of trade policy should be the consumer, and the benefit they could receive from lower prices.
2. The lesson of economic history is that true free trade significantly lowers the prices consumers’ pay in the short term, and drives up productivity and incomes for producers and consumers in the long term, due to the effect of intensified global competition. Economists for Free Trade estimate that international liberalisation and intensified competition at home – from removing onerous regulation – could raise GDP by £135bn. Let’s not get too hung up on the precise number. The key point is that it is big. Project fear would be replaced by project prosperity.
3. Trade policy is being formulated with all eyes on the producer, not the consumer. The Holy Grail of Brexit for Whitehall is zero tariffs on UK exports to the EU, not zero tariffs on UK imports from everywhere.
4. We have to get out of the EU Customs Union, which surrounds the UK (and the EU) with a protectionist wall. Economic modelling suggests that the short term gains to consumers from lower prices would be seven times the cost to producers. Exiting the Customs Union would free us to negotiate independent free trade agreements across the globe.
5. We also have to get out of the Single Market. This surprises people until they realise we need to put “skin in the game” with regard to non-tariff barriers in future trade negotiations. Being part of the Single Market’s single regulatory regime would greatly hinder future trade negotiations with the rest of the world.
6. Only six per cent of UK companies do business with the rest of the EU, but 100 per cent of UK companies are subject to Single Market rules. Moreover, even the European Commission’s own studies are lukewarm towards the gains which have actually been achieved by the Single Market.
In any case, the EU is under a legal obligation to enter into mutual recognition of standards agreements where our goods substantially comply with EU regulation – which of course they already do.
7. There are numerous examples of non-EU countries whose exports to the EU have grown faster than EU countries exports to the rest of the EU have. We need to have more self-confidence. Presently 194 countries and territories successfully trade in the Single Market – without being a member of it.
8. The UK could become a global cheerleader for true free trade. We’ve done it before – with the abolition of the Corns Laws in 1846 – and we could do it again. If we want to help poorer countries, the best way is to open up our markets to them, not send them a cheque from HM Government for 0.7 per cent of GDP.
9. True free trade is based on a counter intuitive truth, that selfless behaviour –opening up your markets to more intensified global competition – is the best policy to boost long-term prosperity.
10. True free trade is entirely within our sovereign power. No negotiation is required, we just lodge a zero tariff schedule with the WTO. The UK would be free to improve its own regulatory regime, negotiate better bilateral deals and help improve the global rules on trade.
Graeme Leach is chief executive and chief economist of Macronomics, a macroeconomic, geopolitical and future megatrends research consultancy.
This article is courtesy City A.M
Equities March 24, 2020