Encouraging words from Cameron on trade

July 25, 2007 4:17 PM

F10157b_5


For far too long the language and rhetoric of international trade
agreements has been depressingly mercantilist.  If one country agrees to
reduce its protectionist measures it is talked of as a "concession" and
a "sell-out", whilst politicians and diplomats who dogmatically cling
onto their ridiculous trade policies are saluted and commended for
defending their country's interests.  Even the most basic understanding
of economics would be enough to realise why such talk is not only
fallacious but hugely damaging. 


Trade, as Adam Smith so famously pointed out, is a non-zero sum game -
trade is not a fight for a finite, fixed supply of wealth where one
country's gain is another's loss, but a wealth creating process, that
allows us to benefit from the resources, skills and specialisation of
other countries.  International trade benefits both trading parties,
leading to better allocation of resources and so lower prices and higher
incomes.  That one country wishes to "protect" its borders from the
benefits of trade is no reason for us to deprive ourselves of these
benefits.  The fact that one country chooses to throw rocks into its
harbour is no reason to throw rocks into ours. 


It is thus very reassuring to hear David Cameron talk of unilateral
reduction and elimination of trade barriers, particularly in developed
nations.  The only engine to sustained growth in human welfare is embracing free markets.
The most successful developing countries have been those that have
traded their way out of poverty.  Not only is it economic madness to
deprive ourselves of the benefits of free trade, it is immoral to
protect ourselves from goods from developing nations, as this only keeps
these nations in poverty.  First-world tariff and subsidy reduction
would do more than any aid package ever could to reduce third-world
poverty.


We are not going to pretend that eliminating western protectionism will
be a magic bullet.  To start with, many of the highest trading barriers
are actually between developing nations and many third world nations
continue to pursue infant-industry protectionism, both of which only
hinder the growth of these impoverished nations.  Too often poverty
campaigners simply choose to ignore the protectionism of developing
nations, in fact in a depressing number of cases they argue in favour of
its continuation as it flatters their ideological commitment to the
neo-Marxist school of dependency theory, and so ignore the fact that
such protectionism is often just as damaging (if not more
so) than developed world protectionism.  In fact, the Conservative
Party's policy review - headed up by Peter Lilley - proposes some
interesting steps to provide incentives to encourage developing nations
to reduce their protectionism, such as providing compensation for lost
tariff revenue.  This again is to be welcomed.


Our fear is that many of these rigorous and noble ideas will simply be
impossible to implement within the framework of the European Union, as
our hands are tied by French farmers and Italian clothes makers and any
new trade agreement would have to be a collective one endorsed by the EU
Commission and every other member, which, as we previously noted, has been making plenty of protectionist noises of late. 


Speaking to a half-empty Rwandan Parliament yesterday, Mr Cameron said:
"Forget the endless, torturous negotiation about getting something in
return [for dropping tariff barriers] ... Just do it. We can afford it,
Africa needs it and we will all benefit from it."  A refreshingly clear
and principled statement.  Unfortunately, given that British politicians
in our puppet Parliament no longer control trade policy (unlike elected
members in America, Australia, China, India, Brazil or Russia), it is
difficult to know how such a speech can ever be translated into action,
short of EU negotiation to take these powers back.

F10157b_5


For far too long the language and rhetoric of international trade
agreements has been depressingly mercantilist.  If one country agrees to
reduce its protectionist measures it is talked of as a "concession" and
a "sell-out", whilst politicians and diplomats who dogmatically cling
onto their ridiculous trade policies are saluted and commended for
defending their country's interests.  Even the most basic understanding
of economics would be enough to realise why such talk is not only
fallacious but hugely damaging. 


Trade, as Adam Smith so famously pointed out, is a non-zero sum game -
trade is not a fight for a finite, fixed supply of wealth where one
country's gain is another's loss, but a wealth creating process, that
allows us to benefit from the resources, skills and specialisation of
other countries.  International trade benefits both trading parties,
leading to better allocation of resources and so lower prices and higher
incomes.  That one country wishes to "protect" its borders from the
benefits of trade is no reason for us to deprive ourselves of these
benefits.  The fact that one country chooses to throw rocks into its
harbour is no reason to throw rocks into ours. 


It is thus very reassuring to hear David Cameron talk of unilateral
reduction and elimination of trade barriers, particularly in developed
nations.  The only engine to sustained growth in human welfare is embracing free markets.
The most successful developing countries have been those that have
traded their way out of poverty.  Not only is it economic madness to
deprive ourselves of the benefits of free trade, it is immoral to
protect ourselves from goods from developing nations, as this only keeps
these nations in poverty.  First-world tariff and subsidy reduction
would do more than any aid package ever could to reduce third-world
poverty.


We are not going to pretend that eliminating western protectionism will
be a magic bullet.  To start with, many of the highest trading barriers
are actually between developing nations and many third world nations
continue to pursue infant-industry protectionism, both of which only
hinder the growth of these impoverished nations.  Too often poverty
campaigners simply choose to ignore the protectionism of developing
nations, in fact in a depressing number of cases they argue in favour of
its continuation as it flatters their ideological commitment to the
neo-Marxist school of dependency theory, and so ignore the fact that
such protectionism is often just as damaging (if not more
so) than developed world protectionism.  In fact, the Conservative
Party's policy review - headed up by Peter Lilley - proposes some
interesting steps to provide incentives to encourage developing nations
to reduce their protectionism, such as providing compensation for lost
tariff revenue.  This again is to be welcomed.


Our fear is that many of these rigorous and noble ideas will simply be
impossible to implement within the framework of the European Union, as
our hands are tied by French farmers and Italian clothes makers and any
new trade agreement would have to be a collective one endorsed by the EU
Commission and every other member, which, as we previously noted, has been making plenty of protectionist noises of late. 


Speaking to a half-empty Rwandan Parliament yesterday, Mr Cameron said:
"Forget the endless, torturous negotiation about getting something in
return [for dropping tariff barriers] ... Just do it. We can afford it,
Africa needs it and we will all benefit from it."  A refreshingly clear
and principled statement.  Unfortunately, given that British politicians
in our puppet Parliament no longer control trade policy (unlike elected
members in America, Australia, China, India, Brazil or Russia), it is
difficult to know how such a speech can ever be translated into action,
short of EU negotiation to take these powers back.

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