Posted on by Art Powell

As the British and the Europeans renegotiate the European Union following a British referendum a number of options are being considered. What will not be considered is the option which would in the long term give the best standard of living – unilateral free trade.

For a long time this blogger has believed the best way to do free trade is for a country to do it on its own by removing all barriers to imports. “Free trade” agreements are not free trade, they are negotiated trade. To get the full benefits of the law of comparative advantage there must be no barriers to imports. There should be no import duties, no quotas and health and safety restrictions should be genuine rather than to restrict imports.

Unilateral free trade could easily be done by any country as each country has the right to control its imports. This will leave them open to “dumping” or subsidies by trading partners. If another country wants to subsidize our standard of living, then we should say, “Thank you very much”.

The case for free trade is based on the law of comparative advantage which says that two countries will be better off if they specialize in their most efficient production and trade even if one of the countries is more efficient in all trading items. With our background we generally think of better off as meaning more economic growth but it could also mean more leisure time. The law still applies.

There are two major problems with unilateral free traded – our commitment to economic growth and the difficulty in making employment changes.

This blogger believes there will be little if any future economic growth because we have used up the easily accessible energy and mineral resources. There are lots left on the surface of this planet but they are so difficult to extract they are mostly useless. I also believe many people are aware of this economic uncertainty even if they do not understand what is happening. This is probably behind the British vote for Brexit, the United States election of Donald Trump, the increasing popularity of extreme left and right wing politicians and the rise of dictatorships around the world and a lot of other unpleasant developments.

The fear of losing one’s job is highly emotional and this is the second big problem with free trade. Free trade means changes in production and this means some people will lose their jobs and have to find new employment. The other side of this problem is that economic changes are a fact of life and will happen regardless of free trade. We try to deal with changing market conditions with subsidies, import quotas, health and safety restrictions on imports and other trade restrictions. In the long term market forces usually win.

Under current economic conditions a lot of people are likely to lose their employment and a lot of people are going to suffer. The challenge should be to facilitate the changes and reduce the suffering. Most people are going to have to accept a lower standard of living. This blogger believes the best way to adjust is to introduce a basic income plan. For more discussion of this please see the rest of this weblog and my book Funny Money: Adapting to a Down Economy.

This guy believes the British and the Europeans would benefit if the British were to use the referendum as an opportunity for unilateral free trade. I also would not want to be a part of the negotiating team as there is unlikely to be a consensus as to what degree of trade to negotiate. There is so much fear, so many emotions and so many conflicting interests that it will be difficult to come up with something most people will be able to accept. There is likely to be a lot of turmoil.

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Filed under: Economics | Tagged: Brexit, Britain, economic growth, emotions, energy, England, European union, free trade, Great Britain, imports, law of comparative advantage, mineral resources, negotiated trade, referendum |