Kevin Williamson has an interesting article on “One Way to Do Brexit: Unilateral Free Trade” (National Review, January 18, 2019). The fact that I wrote similar things, both on this blog (“Brits Could Have a Brexit Cake and Eat It Too”) and elsewhere (a recent example: my January 16 blog post “The Unbearable Lightness of Free Trade,” on the Law & Liberty website) does not take anything away from Williamson’s straight understanding and brilliant formulas–for example:
The United Kingdom has an opportunity to reclaim a very old—and very British—solution: unilateral free trade.
Trade protectionism is punching the other guy in the face—with your face.
But the United Kingdom has an excellent trade strategy in its pocket, just waiting to be used—one that requires no input from Brussels at all. Which is supposed to be the point of all this, isn’t it?
As for the fear of a trade deficit, Williamson debunks it with a few beautiful lines targeted as much at American protectionists as at Brits fearful of unilateral free trade:
Contemporary trade skeptics … hear about “trade deficits” and, misunderstanding that term—it is an intentionally misleading one, after all—believe that our trading partners are somehow getting over on us. Difficult as it is to believe in the particular—that you’ve been victimized by your new Mercedes—it somehow feels plausible as an abstraction.
That talks of unilateral free trade seem absent from the Brexit mainstream suggests that today’s Brits are different from the British traditions many Brexiters claim to defend. But Remainers are often not better company. A Facebook friend, Matěj Šuster, directed me to an article by Remainer Matthew L. Bishop, a senior lecturer in international politics at the University of Sheffield (UK): “Brexit and Free Trade Fallacies, Part Two: Bonfire of EU Red Tape will Not Facilitate Trade.” Bishop openly attacks the alternative of unilateral free trade.
He does not seem to understand the economic arguments for free trade, let alone unilateral free trade. The world has changed radically, he claims, hiding behind “global value chains” and other such mantras. This time is so different that economics has lost its usefulness. Free trade is impossible without trade negotiations (“concessions,” etc.) towards regulatory harmonization. Heterogeneous domestic regulations, he argues, constitute the main obstacle to free trade, and must be replaced by harmonized international (or multilateral) regulation. There is no escape from a controlling Leviathan.
In a preceding post on the same topic, Bishop suggested that we should not “conflate free markets with minimally regulated ones.” In the post cited above, he seems to say that trade requires regulation from the point of view of the traders themselves:
Put simply: if you get rid of the regulation, you inherently rid yourself of the right and ability to participate.
This is puzzling. The whole of economic history bears witness to the fact that traders trade without regulations, which are generally imposed to force them to trade less. Certainly, smugglers don’t wait for the state to grant them “the right and ability to participate.” I previously gave on this blog the example of the trade embargo of 1808-1809.
Perhaps Bishop simply means that, in the context of unilateral free trade, a post-Brexit British producer could not sell stuff (including services) to EU residents without respecting EU regulations. Of course. The EU government will forbid its subjects to import anything that is not compliant with those regulations. This unfortunate truth does not mean that British exporters, if left alone by their own government, would be deprived of “the right and ability” to export compliant goods or services to the continent. Their production costs would likely be higher compared to an ideal situation of no EU regulation. But it remains true that foreign regulation does not imply that an exporter cannot satisfy the requirements of a foreign customer if it is profitable to do so. Between the forbidden and the compulsory—between a trade ban and compulsory harmonization—there is the alternative of economic freedom.
In fact, British exporters already export to America and many other places on earth. As Phil Mullan argues, one doesn’t need a trade deal to trade (see “Time to Bust the No Deal Myths,” Spike, January 17, 2019, and thanks to Mark Brady for recommending this piece).
Of Bishop’s many other puzzling statements, here is another one:
In sum, one of the great fallacies of our time is that firms desperately wish to slash red tape and burdensome rules. Yet for most UK firms it is the advanced, extensive regulation provided by contemporary trade agreements that actually confers on them market power by raising the barriers to entry for weaker competitors.
The first sentence seems to introduce the economist’s view that incumbent firms will tend to use regulations to protect themselves against competition, implying that this rent-seeking should be prevented. Adam Smith already knew that. The second sentence confirms this interpretation, but further suggests that regulations imbedded in so-called “free trade” agreements are good precisely because they foster market power and prevent the increased competition that real free trade would bring. But then, what are the benefits for consumers of these regulations? Why prevent entry at the multilateral level instead of the national level?
The fact that businesses love regulatory harmonization is not, by itself, a good guide to public policy. The goal is that consumers get what they want at the most affordable prices, not that businesses be able to exploit them. For the benefit of the consumer, the less regulation the better.
The argument for unilateral free trade shows that foreign protectionism, although it hurts the foreigners submitted to it, is not solved by domestic protectionism, which only submits nationals to similar disadvantages, and adds injury to insult. It is not because some of your international exchange partners are subjected to more regulation that you must jump in a race to the bottom of restrictionism.
Bishop is of course right that trade in services requires some free mobility of people, although lots of services are bought and sold on the internet. What is sure is that free trade does not imply more regulation: by definition of “free,” it requires less. Unilateral free trade provides that.
READER COMMENTS
Jon Murphy
Jan 20 2019 at 11:26pm
It certainly is a strange conclusion that is sometimes reached: that “free trade” must be imposed on people (see, for example, my recent letter to the Spectator). Or that free trade requires identical rules; indeed, one of the benefits of free trade is that we can see which rules are desirable and which are not, which are costly and which are not, which people want to deal under and which they do not. It is a benefit, not a bug, that different countries have different rules.
Besides, institutions have long evolved to handle the issues of trade without the need of a sovereign, whether it be the absolute “global government” that some protectionists envision or the pseudo-nationalism/federalism global government that Trump, Navarro, and others advocate. An example of one such institution is the Lex Mercatoria.
When people are free to trade and interact with each other, it is not some unregulated free-for-all of lawlessness. Trade developed as a way to escape the Hobbesian jungle rather than as a way of life within the jungle. People do develop their own institutions to handle issues. In other words, law is discovered, rather than imposed, and evolves to address actual concerns rather than anticipate potential concerns.
Weir
Jan 21 2019 at 5:46am
That’s the British tradition, that law is discovered. Hayek’s name for it was judge-made law, but common law is the common name for it.
The rationalist European tradition is the opposite. The Code Napoleon, for example. But before that, Roman law. The history of Europe is the history of standing armies and peasants and Roman law. Scotland apparently had a tradition of Roman law, but not England. The point is that the European Commission issues diktats that are the opposite of discovered. They’re not even discussed.
That’s an element, if you try to see things from their point of view, of what the Brexiteers have been saying for the last couple decades about laws imposed from Brussels. Regardless of whether a particular EU law is opening up X or clamping down on Y. The choice is between a process that looks consensual, evolutionary, organic, deliberative, going through parliament, and having some legitimacy, or else simply imposed from Brussels.
If you don’t first understand where they’re coming from you then you end up talking past the Brexiteers. They’re the ones with an attachment to common law, which is discovered, as distinct from the rationalist French and German ideologies of state-made law.
Matthias Goergens
Jan 21 2019 at 6:05am
I don’t think most Brexiteers (nor remainers) have much of an opinion on common law vs civil law.
Especially since in practice, the actual ways of doing business in eg England and Germany don’t do by as much as you might think, despite eg totally different theoretical underpinnings of contracts.
Weir
Jan 22 2019 at 6:25am
What I had in mind was this article in the Spectator: “Britain’s fight with European law goes back 750 years: The EU is undoing an approach pursued since the days of Henry III.”
Jon Murphy
Jan 21 2019 at 7:07am
Roman Law was discovered law too for centuries. It wasn’t really codified until Justinian came along. On this point, I highly recommend Bruno Leoni’s Freedom and the Law and Cicero’s On the Laws.
Weir
Jan 21 2019 at 5:54am
“A British trade policy already exists: The Conservative PM Robert Peel won the British parliament over to it in 1846, democratically, within Britain.” I said that. It was June 28 2016, at 10:43pm. I was trying to suggest that winning arguments in parliament is a good thing, and that the democratic process is preferable to the alternative.
I understand that the rigidity of the EU appeals to other people. The EU’s refusal to compromise or make concessions to anyone is its selling point to the authoritarians who don’t see themselves as authoritarians.
“I hear people say we have to stop and debate globalisation. You might as well debate whether autumn should follow summer.” Tony Blair said that.
Try to see things from the point of view of the man on the Clapham omnibus, as the saying goes, and maybe you’ll think that Blair sounds a little high-handed. Haughty. Dogmatic. Unpersuasive. Maybe not? A lot of people don’t see anything counter-productive in simply laying down the law in this dismissive way. A lot of people aren’t trying all that hard to win people over to their side. Instead they just enjoy ruling things out of discussion and making ex cathedra statements, calling people names, which is one alternative to making arguments. But not every PM can be Robert Peel.
Michael
Jan 21 2019 at 6:00am
The UK has competitive advantage in services, particularly financial services. You can’t just leave banks alone to trade freely. They will be excluded from foreign markets. To get market access we need mutual recognition, which requires equivalent regulations. I can’t believe there’s political appetite to allow any financial institution anywhere in the world to sell to UK consumers, either. Another UK strength is food processing. If we allow any food products into the UK freely, UK food processing companies will not be allowed to sell into Europe, no matter how many assurances private companies give to EU governments.
Matthias Goergens
Jan 21 2019 at 6:20am
British banks trade just fine around the non-EU world.
Michael
Jan 21 2019 at 6:44am
(Replying to Matthias Goergens) I work for a British bank that trades globally. In many jurisdictions we have to set up locally-regulated subsidiaries, which is not the same as trading freely. The UK benefits because foreign banks set up subsidiaries in London that can trade freely across the EU. Post-Brexit, they will have to set up separate subsidiaries in EU countries, or move activities to existing EU subs, which is what they are currently doing.
Heiner
Jan 21 2019 at 6:14pm
Brexiteer Jacob Rees-Mogg actually suggested unilateral free trade in on number of occasions, e.g. in this interview, at the 5:45 mark: https://youtu.be/K5CEvdpQmRs
Pierre Lemieux
Jan 23 2019 at 10:43am
As far as I can see, he is one of the very few Brexiters–and perhaps the only well-known one–who dares to mention unilateral more-or-less-free trade.
Colonel Bogey
Jan 22 2019 at 9:38am
What is sure is that free trade does not imply more regulation
It certainly is a strange conclusion that is sometimes reached: that “free trade” must be imposed on people (see, for example, my recent letter to the Spectator). Or that free trade requires identical rules; indeed, one of the benefits of free trade is that we can see which rules are desirable and which are not, which are costly and which are not, which people want to deal under and which they do not. It is a benefit, not a bug, that different countries have different rules.
Besides, institutions have long evolved to handle the issues of trade without the need of a sovereign, whether it be the absolute “global government” that some protectionists envision or the pseudo-nationalism/federalism global government that Trump, Navarro, and others advocate. An example of one such institution is the Lex Mercatoria.
When people are free to trade and interact with each other, it is not some unregulated free-for-all of lawlessness. Trade developed as a way to escape the Hobbesian jungle rather than as a way of life within the jungle. People do develop their own institutions to handle issues. In other words, law is discovered, rather than imposed, and evolves to address actual concerns rather than anticipate potential concerns.
Thomas Hutcheson
Jan 22 2019 at 11:54am
Free trade (combined with free entry of EU citizens) would of course be the best alternative to Brexit. The probability that at it would be superior to remaining in the EU and over time having some influence on the policies affecting the restrictions on its major export market for goods and financial services multiplied by the low probability of a post Brexit UK actually having significantly freer trade and movement of persons than by remaining in the EU is very low .
Talk of free trade in goods, services, and people in a post Brexit UK is whistling past the graveyard, I’m afraid, and merely symptomatic of Libertarians unwillingness to support second best policies.
Pierre Lemieux
Jan 24 2019 at 1:34pm
Thomas: From the point of view of the typical Brit, unilateral free trade after Brexit is the second best. The first best would be that the governments of the EU and of other countries simultaneously abolish their own barriers to imports. (Just like worldwide free speech is the first best; the second best is to have it in your country.)
Aretae
Jan 22 2019 at 12:16pm
“Trade protectionism is punching the other guy in the face—with your face.”
Best one liner about trade ever.
Explains the cost/benefit. Lose/lose. You can break his AND your nose. And incidentally leaves open the possibility you’ve got higher pain tolerance…and you may need to for other reasons. While leaving it as a measure that should be used very sparingly.
Phil H
Jan 23 2019 at 11:50am
“The whole of economic history bears witness to the fact that traders trade without regulations, which are generally imposed to force them to trade less. ”
I’m not convinced by this. “The whole of economic history” seems to me to tell a very clear story of not much happening for 5000 years, followed by an unbelievable explosion of prosperity beginning in the late 19th century, by pure coincidence at the same time as the advent of the regulatory state. [/sarcasm]
Traders – or rather adventurers – do indeed trade without regulations, but what makes an economy hum is a set of rules that allows mass participation in high value trading. Canonically, the stock exchange: A very highly regulated, hugely successful market. Freeing Britain up to return to the good ol’ days of prospective trading voyages doesn’t sound like a positive to me. We need to be tied into big markets. Giving British companies the freedom to voluntarily comply with either the EU rules or the US rules or the Chinese rules isn’t going to help them, it’s just going to lead to confusion and fragmentation.
ChrisA
Jan 25 2019 at 2:04am
Phil H – mutually agreed rules are indeed helpful in exchanges and trading. But why do they need to be imposed from some external body? Why can’t the participants in the exchange develop the rules themselves? And if they don’t like the rules or think they are not helpful then they can go ahead and start an exchange with different rules? Actually if you look how most of the exchanges developed that is exactly what happened. The external regulations only came later after they were already set up and functional. And frankly most of the regulations come not to make the exchange more efficient or effective, but to protect the rents of some sub-group or other.
In terms of the issue of British companies being confused between Chinese, US, Europe and other regulations, really isn’t that the situation we have today? The US is one of the UK’s biggest export markets with even the measurement system being different to the EU. But it doesn’t seem to be a problem. Much is made of these concerns by authoritarian style thinkers, but the reality is very different, I speak from experience and businesses deal with many more challenging problems than this.
Phil H
Jan 25 2019 at 1:45pm
Thanks for the reply. I hear what you say, and I don’t actually think we disagree fundamentally on the qualitative nature of how the economy works. But I think I see the quantitative differences as much more important than you. Specifically:
“Why can’t the participants in the exchange develop the rules themselves?” This is a question of the us vs them identification. Business is “us”, government is always “them”. I just don’t see it that way. Individual businesses can’t “develop the rules themselves” because that’s ridiculously inefficient. Reinventing the wheel for every deal is no way forward. Business communities as a whole can and do develop the rules for themselves. These rules become conventions, then standards, and maybe ultimately laws. But lawmakers are typically directed by business in this process.
“most of the regulations come not to make the exchange more efficient or effective” I think this is where the disagreement lies. The NYSE’s daily trading volume is hundreds of billions of dollars every day (and it’s mostly machine trading now). That kind of liquidity and slickness does seem to be very obviously “more efficient and effective”. (Point of comparison: the Shanghai Stock Exchange has less than 5% of the trading volume, and does a much worse job of serving the real economy. Size matters, and size needs certainty of rules.) Similar arguments apply in many other markets – the dominance of London as a financial center is very much connected with the UK’s strong legal system, for example.
“British companies being confused between Chinese, US, Europe and other regulations, really isn’t that the situation we have today?” This is a good point, and I certainly don’t think that Brexit is doomsday. The UK clearly can survive outside Europe, and without harmonization. I just think it’s clear that we’ll survive *better* if we are more tied into one of the world’s big games. We’ll be more responsive, we’ll have a voice in setting the rules, and we’ll be more likely to benefit from economies of scale. Unilateral anything reduces our chances of doing those things.
Comments are closed.