Philip Hammond, the chancellor, has said it is “terrifying” that one of Boris Johnson’s close allies, Jacob Rees-Mogg, believes a no-deal Brexit will boost the economy.
Look, this is not difficult.
Leave tomorrow with no deal. Declare unilateral free trade. Watch the economy grow. Preferably abolish corporation tax and get to work abolishing regulations, too. “Trade deals” are unnecessary since people trade with people and all governments can do is get in the way.
Objections?
Certainly, unilateral free trade would be the easiest thing to implement once the UK is out on its own. There are True Believers in unilateral free trade, but they do not seem to be able to give any convincing explanation of how this is going to benefit the people of the UK in the real world..
The theoretical basis for unilateral free trade has a number of very significant (and improbable) assumptions — such as that every Brit who loses a job due to cheaper imports will immediately find an equivalent or better job making some good or service to export. The unilateral free traders see people only as cargo-cult consumers, and ignore the fact that people have to produce before they can sustainably consume.
In the real world, we have the example of the UK in the late 1800s, which largely headed in the direction of unilateral free trade. And what happened to the once impressive UK “Workshop of the World”?
In the real world, we also have the current example of the de-industrialized US. While not true unilateral free trade, the US has been much more open to imports than most countries, and during the Cold War deliberately followed a policy of trade deals which disadvantage the US in the hopes of building up the economies of allies. Look at once thriving Detroit or Cleveland, or at the millions of US citizens who have been displaced from the workforce by imports.
In principle, true bilateral free trade between near-peer economies can give everyone the benefit of Comparative Advantage. But those bilateral deals are — bilateral. That requires negotiation, and what we have seen in the last 3 years of Brexit is that negotiation is not the UK Political Class’s strong suit. Unilateral free trade post-separation from the EU would be a recipe for slow-moving disaster.
More practical than unilateral free trade would be massive internal de-regulation of the UK economy. Cut the overhead. Eliminate the Political Correctness. Speed up governmental approval processes. Make the UK the easiest place in the developed world to do business and make products.
Can the UK Political Class accept that they need to step back if the UK is to make a success of the post-Brexit economy? That is the real challenge. Fortunately, it is one the people of the UK could do something about — if they are organized and have plans for reforming the governance of the UK.
“will immediately find an equivalent or better job”
Not immediately, no. Dynamic effects are a problem, indeed. In the long term, though, yes. The short term costs are really just paying back the mis-allocations caused by the trade protections in the first place.
I am all in favour of massive de-regulation, though.
Hmmm. As I understand it, the only way that tariffs or other trade barriers “save” jobs is by passing the cost of saving those jobs on to other consumers.
You end up, with an Australian example, of buying a car designed and built in Australia costing when new about A$40,000. The exact same car being made in Aus and sold in the US costing less than USD$20,000. Yes, Australia gets to say they have a car building industry that creates thousands of jobs but only by passing the cost of maintaining that industry onto local consumers.
We probably all agree that preserving internationally-uncompetitive industries is wasteful, and should be avoided where possible.
But we should also ask ourselves why those industries are internationally-uncompetitive? I suspect the answer will often turn out to be excessive ill-considered governmental regulation and excessive complex counter-productive taxation, i.e. policies which are completely within the control of an individual country. First correct those self-imposed burdens, and the trade imbalance issues will likely become much less of a problem.
Turning to trade, what we need to see are Real World examples of the benefits of unilateral free trade. Because the usual theoretical arguments tend to omit some very real costs.
To use the demise of the Australian auto industry as an example, when the industry dies and Australians buy only imported cars, the people who buy those cars may benefit from paying a lower price for the car. But if the now-unemployed Australian auto workers can’t find other jobs and go on the taxpayer-supported dole, all Australians who still have jobs will directly or indirectly pay for supporting those people. We need to take a holistic view of the national economy, not just look at the immediate benefit to some consumers of getting a cheaper price from the import.
But the long-term issue with unilateral free trade is probably the loss of skills and loss of manufacturing capacity — which makes it more difficult to start up new businesses to employ the displaced workers and to pay for the imports. What is the cost of that? And where does it show up in the theoretical model?
One of the other implicit assumptions in unilateral free trade is that everyone wants to buy the world a Coke. Australia will never wake up to find a Chinese army landing on its shores, and wishing that it had the capacity to manufacture vehicles & equipment to fight back. Recorded history suggests that it is unwise to assume that everyone in the world will always be peaceful — but how do we put the value of an industrial capacity insurance policy into the unilateral trade equation?
Independence is simple to achieve if you really want it. Impossible if you don’t.