Free trade is a force for good – but it must be fair

Free trade is a force for good – but it must be fair

As we rush towards free trade deals, it is important take stock of exactly what they are and what we want out of them.

Just as politics spans a spectrum from left to right, so does trade. At one extreme we have free trade and at the other protectionism. As with politics there are no real absolutes at either end. On the political spectrum in broad terms we are moving, in the developed countries of the world, from left to right with greater pressure from democracies for the electorate to have a greater say and for bureaucracies to have less. With regard to trade we are seeing a move towards free trade and away from protectionism. But it’s not that simple – as Mr Trump ably demonstrates.

Free trade is not free in the sense that countries in free trade agreements will always agree to remove all tariff barriers and other internal trade barriers. Free trade is the freedom to make that decision and determine the terms on which we trade with others. That said, of course, the aim is to reduce barriers to trade for the mutual benefit of all parties.

Within the EU at present we have no tariff barriers on our trade in goods but there are still barriers to our trade in services – which represents 60% of UK trade, often ignored because much is embedded in the supply chain of goods. There are also hidden internal barriers, mostly in the form of domestic regulation. But our freedom to make free trade deals with non-EU countries is prohibited.

So in a sense, while we have free trade of a sort between EU member states, the deal is protectionist in global terms, preferring EU members to non-EU nations. Outside the EU, the single market and the customs union, we will be able to choose who we trade with and on what terms. But in the real world, any country needs friends – like-minded economies to enter into trade deals with for mutual benefit. The difference is we get to choose our partners. New global groupings will emerge between complementary economies.

Is protectionism dead? No – it’s alive and kicking, most vociferously in the United States of America, the land of the free. Mr Trump is not anti-free trade as such but he is pro the US “national interest”. Isn’t that a phrase we have heard before? Have we not been told time after time that the Government will do what is in the national interest? We may demonise Mr Trump for some of his policies and way of doing business, but does he have a point?

Absolute free trade with no barriers is based on the economic theory of comparative advantage. If each country does what it is good at and sells it to the others we will all be better off. Globally that would be true, but the fruits of our labour are not shared globally, but nationally. So the financial upside will depend on labour costs, the value of the product and exchange rates. It is because of just these constraints we have not done well out of free trade in the EU.

For any country focused, as it should be, on its national interest, it has to consider where on the spectrum of free trade and protectionism it wants to be. The Government has said it wishes to be a new global free trade leader. Commentators have suggested the UK should and could become the new free trade leader – and we certainly have significant advantages given our legal and regulatory system. We will certainly be more successful trading freely with similar economies than we would be if we remained either within the EU or alone with no trade deals.

But where is the balance? The Prime Minister has said we should preserve our national assets, not see them go into foreign ownership. We have lost our main utility companies to overseas investors, and we now risk losing our Stock Exchange to Germany. I don’t advocate protectionism, far from it, but I do advocate trading relationships that, while “free” of tariffs and barriers, are “fair” and take into account the impact on the security of the nation, the impact on our core infrastructure and the impact on domestic employment.

We have already lost many of our utilities to foreign ownership, but whatever we think of British Telecom as a service provider, I would not want to see a key communications provider like BT in foreign hands. The Stock Exchange is a key national asset which underpins our strength in our financial services industry. Yes – go ahead and do deals which will grow our exports and thus national productivity and GDP, but think also of the impact on the British citizen and the GDP impact for them.

Free trade is a force for good, but fair trade is even better.