Austrian Economics

Adopt Unilateral Free Trade with Post-Brexit Britain

By: Ryan McMaken
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In order to whip up opposition to Brexit, pro-EU activists have long relied on generating fear by suggesting that without EU membership, British trade will suffer, and export totals will collapse.

This, however, has always been an unconvincing argument because EU membership tends to restrict participation in global trade more than it enhances it. Even the EU admits that “growth in global demand is coming from outside Europe, noting that 90% of global economic growth in the next 10–15 years is expected to be generated outside Europe, a third of it in China alone.”

Moreover, the importance of the EU as an export market for the EU has been declining in recent decades. 15 years ago, the EU accounted for over 50 percent of all UK exports. By 2015, the number had fallen to 44 percent, reflecting the shift toward markets outside of the EU.

Even the EU’s core members like Germany know the real future of global trade lies outside the EU. As Alasdair MacLeod noted last year,

[W]ith respect to trade, Fortress Europe’s trade policies are increasingly disadvantageous to her. Germany now exports more to China than to any individual European country, benefiting big businesses. The power of the large German corporations, and their influence on the federal government, should not be under-estimated. She sees on her Eastern flank, of what used to be Prussian territory, a pan-Asian phoenix arising in the form of the Shanghai Cooperation Organisation (SCO), led by Russia and China. And it is growing.

Only this week, India and Pakistan also became full SCO members, taking the rapidly-industrialising membership to nearly half the world’s population. The Silk Road is sending goods to Europe, and will transport Mercedes, BMWs, and VWs the other way. Asian demand for German engineering and capital equipment is likely to become the largest market by far for the foreseeable future.

Really, by staying in the EU — which is obsessed with tightly regulating and controlling trade with countries outside the bloc — the UK is limiting its own ability to be flexible with the rest of the world.

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These facts, however, are not readily apparent to the general public in the UK or elsewhere, and the idea that the UK will be somehow “isolated” without the EU continues to turn heads.

But how to help illustrate that Brexit really means more openness in trade?

There is an easy way to help with this, of course, and it would be the right thing to do with our without Brexit.

The US should immediately adopt a position of unilateral free trade with the United Kingdom.

The US, of course, should adopt unilateral free trade with everyone, but the UK is certainly a fine place to start.

Moreover, political arguments against unilateral free trade with the UK are especially unconvincing.

After all, opening up unfettered free trade with the UK would be a coup in terms of geopolitics. It would make the US an indispensable partner all the more, and solidify the UK as part of a North American trade bloc, rather than as part of a European one.

Moreover, any claims that unilateral free trade with the UK is “enriching our enemies” would be laughable. The UK and the US have been at peace for more than 200 years. Unilateral free trade doesn’t lead to “exploitation” of the US in any case, but even if it did, this would not be a militarily significant issue.

From an economic standpoint, of course, unilateral free trade is always to the benefit of the country which adopts it. It would mean lower production costs and less expensive consumer goods for countless Americans and entrepreneurs. Even if the UK maintained tariffs on American goods, the end result would only mean more inexpensive goods for Americans, and more investment in the US by British companies who reap the rewards of selling more goods to Americans.

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Claims that the US would be flooded with “cheap goods made by slave labor” — as some anti-China protectionists like to claim — would be obviously non-sensical, of course. British labor laws are similar to those in North America, and the cost of British labor is similar as well.

Moreover, when it comes to trading with the British, it is harder for protectionists and xenophobes to capitalize on nationalist impulses to push their agendas. Are we really to believe that we ought to fear exploitation by English-speaking high-income foreigners who, by the way, have an extensive history of investment in American industries?

Trump’s Mishandling of the Brexit Situation

Unfortunately, for his big talk about building strategic advantages for the US, Trump has badly mismanaged the Brexit situation and will probably botch the opportunity to draw the UK further into a greater partnership with the US.

Instead of using Brexit as a means to build a better relationship with the UK at the expense of the EU’s quasi-socialist bureaucrats, Trump has instead attempted to isolate the UK further in order to force UK acquiescence to Trump’s economically-illiterate campaign against free trade.

This hurts American consumers and producers while also potentially helping politicians in both China and the EU. As Tomas Wright at Politico notes:

A post-Brexit Britain needs close relations with other major countries, and if the United States is difficult to deal with, it will find itself increasingly tempted into a closer economic partnership with China, one that will surely have political consequences. Trump’s antagonistic approach also plays into the hands the leftist leader of the opposition, Jeremy Corbyn, a persistent critic of a close U.S.-UK alliance who would likely leap at the chance to weaken the special relationship.

My personal position is that it is not important or in our best interest to strike blows against China or any other country. Political neutrality and open commerce is always the best position. However, I do know that Trump and his allies think that playing games with China and the EU are important policy goals. And in this regard, the administration’s anti-UK protectionism is counter-productive.

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No doubt Trump’s supporters will stick to their little narrative in which Trump is playing 4-D chess and has some grand plan that will both stick it to the EU and massively increase American exports to the UK at the same time.

This is a pipe dream, of course, but some people seem to actually believe it.

Were the Trump administration wiser, it would pursue unilateral free trade not just with the UK, but with the entire Anglosphere of Canada, Australia, and New Zealand. Both the economic and strategic benefits would be substantial.

Source: mises.org/power-market

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