One of the big benefits of Brexit, we are told, is that we will be able to do our own trade deals with countries around the world. Presumably tariff-free trade deals. The opposite of free trade being protectionism, for which Donald Trump is being widely denigrated.
But is life that simple? Free Trade Good, Protectionism Bad?
Obviously it isn’t. Tariffs exist to protect domestic markets against unfair competition resulting from lower material and labour costs in other countries. It also prevents “dumping” where a country will sell goods at lower than cost in order to destroy competitors and thereafter dominate that market. On the other hand the protectionism embodied by the Corn Laws in the 19th Century caused untold hardship, including death through starvation and undoubtedly worsened the impact of the potato famine in Ireland. So there has to be balance. Tariffs to protect against dumping and unfair competition but no tariffs where demand is higher than supply or the tariffs protect inefficiency or exist for the purposes of profiteering by vested interests.
Free trade amongst countries that are roughly in the same ballpark when it comes to economic and industrial development is usually a positive thing. We buy your Volkswagens, you buy our Minis. We buy your Mercs, you buy our Jags. So the free trade between the wealthier EU countries is generally beneficial for all. Rapid expansion of the EU into less affluent parts of Eastern Europe is not so good for either side of the equation. It was an opportunity to move manufacturing production to less expensive labour markets whilst also giving unfettered access to fragile and developing economies. Enabling exploitation.
Free trade in goods and materials between countries with a huge gulf in economic development can be a big mistake although can be mutually beneficial when targeted. Does the UK want a free trade deal with China that covers cars and steel? I’d say absolutely not as this would decimate what we have left of those industries. Indeed we should be levelling the playing field to rebuild those industries.
There is another use of trade tariffs that Trump has championed but which is actually a powerful tool for good in International Relations. That is the imposition of tariffs, or cessation of free trade for political rather than economic reasons. The use of trade to influence behaviour. The most obvious manifestation of this is where sanctions are involved, complete prohibition of trade. Undoubtedly this does damage the country being sanctioned but more often than not it is the ordinary citizens who suffer rather than the priviledged leaders. They may even use the sanctions to demonise the foreign powers imposing them. However, there is a more subtle application. As an example EU free trade with Mercosur countries is currently frozen pending Brazilian action to stop the destruction of the Amazon. Outside the EU we can do ethical trade deals such as free trade in bananas only where the producer respects all human rights. For example, Costa Rica generally scores highly on LGBT rights where most Commonwealth Caribbean countries do not. It also rates higher than Italy and Malta where corruption is concerned. Should we not reward good behaviours via favourable trading terms for tropical fruit? I think we should.
If you do not get the balance correct, then the forces of popularist right wing politics can exploit the outcome. Most people in the UK are genuinely puzzled at support for Trump policies in the USA. Or they interpret it as pure racism and all the other ‘isms. However, Trump latched onto the despair of many Americans living in towns once affluent, or at least surviving, based on local industries that have now closed down with production outsourced to China, Vietnam, Laos, India, Mexico, where labour costs are cheaper. Detroit in 1950 had a population of 1.8 million. In 1990 it was still over 1 million. Today it is estimated at 670,000 people. Trump promised to reverse industrial decline through renegotiating the trade deals that have led to cheap imports, and tens of millions voted for that. It’s an attractive message although near impossible to deliver on within a 4 year term. What is a little odd is that Trump is a global capitalist so his anti-free trade stance is at odds with his personal interests. In the UK our right wing politicians are under too much influence from their funding donors, and their friends in the financial centres, to promote that path, but it is perfectly possible that Corbyn and his Momentum acolytes would take up protectionist popularism, and find an underclass skimmed off from Brexit Party/UKIP supporters willing to vote for it, especially if our EU Exit goes badly wrong.
In conclusion, free trade in all circumstances is not a good thing. It is good when it fills gaps in domestic supply chains, good when it delivers materials and manufactured products we don’t ourselves produce, good to encourage positive behaviours, and good where it encourages higher quality and greater efficiency and productivity due to fair competition. It is bad when it destroys otherwise efficient and profitable domestic industries, bad where it removes domestic capability in critical areas of national security, bad where it encourages and rewards poor social and environmental behaviours, and bad when it leads to extremist protectionism when the balance is wrong.