When jaw-jaw is the flaw

By Tim Worstall. See also ‘We did it before, we’ll do it again: my call to the champions of world trade‘ (THE TIMES, 07/11/06):

GORDON BROWN favoured us with his thoughts on trade policy in these pages, which is of course very nice of him. But why the Chancellor of the Exchequer should concern himself with such matters is somewhat odd. Trade policy is an exclusive competence of the EU, so our elected politicians can do nothing more than act as cheerleaders for the views they put forward.

What is worse is that while his article contained all the right buzzwords — globalisation, no to protectionism, lower agricultural subsidies and so on — the core of the argument appeared to be missing. Which is that negotiations about trade are in themselves an absurdity.

Approach any random passing economist and ask for his views on trade: within moments he will tell you that the most important thing is that it should be free. Free trade is fair, as it is voluntary, and, via the expansion of the division of labour across the globe, makes us wealthy. He will also tell you that imports make us rich, not exports; so our placing barriers in the way of those things that we buy is the utmost foolishness. We’ve known this since 1817 when Ricardo published his Principles of Political Economy and Taxation but things move slowly in the world of political ideas.

Because it is imports that we desire — exports being simply the tiresome labour that we must ship abroad to pay for them — negotiating with other countries about their tariffs and quotas is ludicrous. Why should we care if the foreign governments make their own citizens poorer by denying them the products of the globe? We should concentrate on what makes us richer, the abolition of all those barriers to our own wealth that we impose upon ourselves.

Joan Robinson, the Cambridge economist, once pointed out that trade negotiations are conducted on the basis that we’ll stop throwing rocks in our harbours when you stop throwing rocks in yours: this is not rational.

A rational policy would be to stop throwing rocks in our own harbours and declare unilateral free trade. True, our European partners are unlikely to go along with such a plan. But as the economist Patrick Minford has calculated, even if the EU denied its citizens the benefits of our labour through tariffs, we would still be better off by about £30 billion a year if we followed the logic and quit the Brussels customs union.