In a few short weeks, Britain will begin negotiations with the EU on how we will trade in the years ahead; in the next three years, the return of Britain’s capacity for self-government will give us the chance to trade freely with the rest of the world once more. To grasp these opportunities will require confident choices.
Sir Kenneth Clarke wrote that it is a lack of confidence, more than anything else, that kills a civilization. It would be hard to say Greece within the Eurozone, for example, is not a case in point. Countries often forget the attitudes that made them flourish: bad choices may follow leadership, and too many bad choices means demise. Freeing trade is one of the confident choices we must now make.
Free Trade Generates Wealth
In The Wealth of Nations of 1776, Adam Smith first uncovered why freeing trade can generate wealth for all parties involved, because countries could export what they make efficiently and import what they cannot:
The tailor does not attempt to make his own shoes, but buys them off the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor… What is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom.
To trade freely, then, is to choose real social justice.
In our day, this means that by allowing farmers in the developing world, for example, to import without tariffs results in higher incomes for them and cheaper food for Britain’s poor. To trade freely, then, is to choose real social justice. Smith also showed how it is still worth choosing free trade even if we don’t expect reciprocation: a country gains just by importing things made more cheaply by others.
Today, what a country like Britain does most efficiently is neither shoemaking nor tailoring, but the production of knowledge-intensive services. Yet these are increasingly at risk. The arrival of the “MiFID II” regulations in the City shows how EU rules are now so burdensome that, just weeks after the imposition of this 7,000-page set of regulations, firms are already moving business elsewhere (witness the InterContinental Exchange moving trades to the US). To apply Smith’s insight today must mean not only removing tariffs but being able to make our own, pro-competitive, regulation. Our inability to do so is already destroying prosperity.
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