Victimized By One's Own Mercedes By Pierre Lemieux

Kevin Williamson has an interesting article on “One Way to Do Brexit: Unilateral Free Trade” (National Review, January 18, 2019). The fact that I wrote similar things, both on this blog (“Brits Could Have a Brexit Cake and Eat It Too”) and elsewhere (a recent example: my January 16 blog post “The Unbearable Lightness of Free Trade,” on the Law & Liberty website) does not take anything away from Williamson’s straight understanding and brilliant formulas–for example:

The United Kingdom has an opportunity to reclaim a very old—and very British—solution: unilateral free trade. Trade protectionism is punching the other guy in the face—with your face. But the United Kingdom has an excellent trade strategy in its pocket, just waiting to be used—one that requires no input from Brussels at all. Which is supposed to be the point of all this, isn’t it?

As for the fear of a trade deficit, Williamson debunks it with a few beautiful lines targeted as much at American protectionists as at Brits fearful of unilateral free trade:

Contemporary trade skeptics … hear about “trade deficits” and, misunderstanding that term—it is an intentionally misleading one, after all—believe that our trading partners are somehow getting over on us. Difficult as it is to believe in the particular—that you’ve been victimized by your new Mercedes—it somehow feels plausible as an abstraction.

That talks of unilateral free trade seem absent from the Brexit mainstream suggests that today’s Brits are different from the British traditions many Brexiters claim to defend. But Remainers are often not better company. A Facebook friend, Matěj Šuster, directed me to an article by Remainer Matthew L. Bishop, a senior lecturer in international politics at the University of Sheffield (UK): “Brexit and Free Trade Fallacies, Part Two: Bonfire of EU Red Tape will Not Facilitate Trade.” Bishop openly attacks the alternative of unilateral free trade.

He does not seem to understand the economic arguments for free trade, let alone unilateral free trade. The world has changed radically, he claims, hiding behind “global value chains” and other such mantras. This time is so different that economics has lost its usefulness. Free trade is impossible without trade negotiations (“concessions,” etc.) towards regulatory harmonization. Heterogeneous domestic regulations, he argues, constitute the main obstacle to free trade, and must be replaced by harmonized international (or multilateral) regulation. There is no escape from a controlling Leviathan.

In a preceding post on the same topic, Bishop suggested that we should not “conflate free markets with minimally regulated ones.” In the post cited above, he seems to say that trade requires regulation from the point of view of the traders themselves:

Put simply: if you get rid of the regulation, you inherently rid yourself of the right and ability to participate.

This is puzzling. The whole of economic history bears witness to the fact that traders trade without regulations, which are generally imposed to force them to trade less. Certainly, smugglers don’t wait for the state to grant them “the right and ability to participate.” I previously gave on this blog the example of the trade embargo of 1808-1809.

Perhaps Bishop simply means that, in the context of unilateral free trade, a post-Brexit British producer could not sell stuff (including services) to EU residents without respecting EU regulations. Of course. The EU government will forbid its subjects to import anything that is not compliant with those regulations. This unfortunate truth does not mean that British exporters, if left alone by their own government, would be deprived of “the right and ability” to export compliant goods or services to the continent. Their production costs would likely be higher compared to an ideal situation of no EU regulation. But it remains true that foreign regulation does not imply that an exporter cannot satisfy the requirements of a foreign customer if it is profitable to do so. Between the forbidden and the compulsory—between a trade ban and compulsory harmonization—there is the alternative of economic freedom.

In fact, British exporters already export to America and many other places on earth. As Phil Mullan argues, one doesn’t need a trade deal to trade (see “Time to Bust the No Deal Myths,” Spike, January 17, 2019, and thanks to Mark Brady for recommending this piece).

Of Bishop’s many other puzzling statements, here is another one:

In sum, one of the great fallacies of our time is that firms desperately wish to slash red tape and burdensome rules. Yet for most UK firms it is the advanced, extensive regulation provided by contemporary trade agreements that actually confers on them market power by raising the barriers to entry for weaker competitors.

The first sentence seems to introduce the economist’s view that incumbent firms will tend to use regulations to protect themselves against competition, implying that this rent-seeking should be prevented. Adam Smith already knew that. The second sentence confirms this interpretation, but further suggests that regulations imbedded in so-called “free trade” agreements are good precisely because they foster market power and prevent the increased competition that real free trade would bring. But then, what are the benefits for consumers of these regulations? Why prevent entry at the multilateral level instead of the national level?

The fact that businesses love regulatory harmonization is not, by itself, a good guide to public policy. The goal is that consumers get what they want at the most affordable prices, not that businesses be able to exploit them. For the benefit of the consumer, the less regulation the better.

The argument for unilateral free trade shows that foreign protectionism, although it hurts the foreigners submitted to it, is not solved by domestic protectionism, which only submits nationals to similar disadvantages, and adds injury to insult. It is not because some of your international exchange partners are subjected to more regulation that you must jump in a race to the bottom of restrictionism.

Bishop is of course right that trade in services requires some free mobility of people, although lots of services are bought and sold on the internet. What is sure is that free trade does not imply more regulation: by definition of “free,” it requires less. Unilateral free trade provides that.