Despite loud opposition to free trade, consumers will benefit if Europe and America open their markets to each other.
An American friend recently sent me a gift as a thank you for a weekend’s hospitality. It arrived in the form of a card from the Post Office telling me to pay a hefty sum of tax before the item itself (a wooden bowl) could be delivered. Had my friend been Scottish or French or from the next village there would have been no charge. What business has government putting a tariff barrier between two friends?
Last week the Conservative party chairman Grant Shapps delivered a passionate defence of free trade of the kind that used to come from the radicals in the days of the Corn Laws but these days is rarely heard from any part of the political spectrum. Crucially, he took the perspective of the consumer, not the producer.
The free trade debate that used to be such a huge part of British politics is re-emerging because of the trade agreement being negotiated between the United States and the European Union, the Transatlantic Trade and Investment Partnership. Inflatable white elephants with TTIP written on them have been appearing at
Pressure groups on the left are increasingly agitated that the agreement is being negotiated in secret and contains clauses that might force competition on the National Health Service — a canard that Mr Shapps exposed as nonsense. They couch their opposition almost entirely in terms of the risks to producers — farmers, health-service managers and small businesses fearful of American competition.
But the point about free trade is and always should be that it is good for consumers. “Consumption is the sole end and purpose of all production”, said Adam Smith. The genius of the Corn Law radicals was to turn the debate upside down and give the consumers a voice. Between 1660 and 1846, the British government passed 127 Corn Laws, imposing tariffs as well as rules about the storage, sale, import, export and quality of grain and bread. The justification was much like today’s opposition to TTIP: maintaining our supposedly high standards against foreign, cheapskate corner-cutters.
In 1815, Parliament banned the import of all grain if the price fell below 80 shillings a quarter — to protect landowners. Rioters vandalised the house of Lord Castlereagh and other supporters. David Ricardo wrote a pamphlet against the laws, but in vain. It was not until the 1840s that the railways and the penny post enabled Richard Cobden and John Bright to stir up a successful mass campaign against the laws on behalf of the working class’s right to buy cheap bread from abroad if they wished.
Cobden did not stop there. Elected to parliament but refusing office and honours, this pacifist radical was as responsible as anybody for accelerating global economic growth. He persuaded Gladstone to abolish many tariffs unilaterally, and personally negotiated the first international free trade treaty in 1860, the so-called Cobden-Chevalier treaty with France, which established the unconditional “most-favoured nation” principle, leading to the dismantling of tariffs all over Europe. “Peace will come to earth when the people have more to do with each other and governments less,” he said.
Only when Bismarck began rebuilding tariffs in 1879 did the tide begin to turn, and competitive protectionism slowly throttled free trade, eventually contributing to half a century of war. Britain held out longest, enacting a general tariff only in 1932 under Neville Chamberlain as chancellor. Trade barriers undoubtedly helped precipitate war: they shut the Japanese out of resource markets that they then decided to seize by force instead, while Germany’s Lebensraum argument would have carried less force in a free-trading world.
The argument for free trade is paradoxical and much misunderstood. Free trade benefits consumers because it is the scourge of expensive or monopolistic national suppliers. It benefits both sides: yet it works unilaterally. Your citizens benefit if you let them buy cheap goods from abroad, while foreigners are punished if their government does not reciprocate. This creates more demand for local services and hence more growth and jobs in the importing country.
Contrary to what most people think, therefore, it is imports that bring the greatest benefit, not exports — which are the price we have to pay to get the imports. At the centre of the debate lies David Ricardo’s beautiful yet counterintuitive idea of comparative advantage — that it will always pay a country (or a person) to import some goods from another, even if the first country or person is better at making everything. Truly free trade cannot be a predatory phenomenon.
But surely all these Cobdenite arguments are old-fashioned and irrelevant in a world of labour standards, environmental protections, the internet and so forth? Not so. They are as true today as ever, and thank goodness we have at least one political party prepared to make them. The Liberal party used to champion free trade, as did the Manchester Guardian, but these days both spout the fearful mercantilism of the pre-Peel Tories.
The trade barriers in the Atlantic cost consumers on both sides. Mr Shapps pointed out last week that every American pair of jeans costs you 12 per cent more than it should; every British pint of beer costs Americans 157 per cent more than it should. Americans are forbidden by law from buying British lamb or venison. TTIP is set to tackle some of these absurdities, to reduce non-tariff barriers, harmonise standards and give people more freedom to buy from whomever they choose.
TTIP’s opponents are particularly horrified that it includes a provision to let large and small businesses sue foreign governments for shutting them out of investment in their countries. My worry is that this provision may not go far enough — to enable consumers to have redress against governments.
As a book called A Time for Choosing from the Free Enterprise Group of MPs will argue, if there is one country that should be able to benefit from freer trade it is Britain with its widely spoken language, financial services, management and business services, software and creative industries, not to mention its Premiership football, Scotch whisky and boy wizards, all of which we can sell to the world in exchange for movies, fruits and gadgets that others are good at producing.
In an ideal world, every citizen of Planet Earth would have the freedom to buy and sell from every other, without regard to nationality, and free trade agreements like TTIP would not even be necessary.