Trade protectionism is legitimate and can be effective.
I’ll explain why.
First, international trade is desirable and necessary. And it boosts global welfare. However, it’s a mistake to advocate total free trade at all times and in all places. Why? Because at certain times, certain forms of industrial protectionism are beneficial to certain nations. Remember economic history. The United States developed its manufacturing behind a tariff wall. South Korea did the same. The point is, all nation states practise forms of protectionism from time to time, often for very good reasons.
Secondly, my advocacy of some trade protection is not ideological. It’s based on national interest. If a system of totally free imports were good for the country, I’d support it. The point is, right now, it isn’t and I don’t. By the way, politically this is nothing new. It was the position of my favourite Edwardian Tory – F. E. Smith, who argued, quote:
“It is a waste of time to consider where we stand as between Free Trade and Protection. We are offered no such choice. We must choose between protection and one-sided free imports. Confronted with such alternatives. If this indeed be the choice, I am a protectionist.”
Third – the key point and the overriding point. We must face the fact that Britain has a massive trade problem and it’s making us poorer. We run large trade deficits year after year. Now, some economic liberals think it doesn’t matter. This is completely wrong. Remember, we can pay for imports in 3 ways… by exporting things, by selling assets, or by issuing debt. Running a big trade deficit means selling assets and raising debt. This isn’t a theory – it’s just mathematics. If you think this doesn’t matter, you’re putting flow above stock, consumption over wealth. As someone once said, debt-fulled consumption is not prosperity. It’s like selling your house to buy beer. Beer is good but you shouldn’t put it on the capital account.
My key point is… you are not going to correct your trade gap by continuing the trade and industrial policies which got you into it. As an aside, I think the cause of the trade gap is partly cultural. It’s the indifference of our ruling class to what is made where and by whom and indifference to who owns what. Our ruling class is ideologically attached to free trade – whatever the consequences. Even if it implies foreign ownership of our key industries or vassalage to the United States. It doesn’t seem to matter.
Fourth, cheap goods are more costly than you think. For 40 years we’ve run an experiment in light or tariff-free imports. The result is de-industrialisation, production off-shored to China. Manufacturing as a percentage of UK GDP has fallen from 30% in 1980 to about 9% now. The effect of this on the Midlands and the post-industrial North has been huge. Sheffield used to have 70,000 steelworkers. It now has 70,000 students. A local economy based on production has been replaced with one based on debt. The industrial wage – once the foundation of the family – has been destroyed. And when the factories close, the drug dealers move in. And as the benefits bill ramps up, the state borrows money to mop up the blood. Yes, you’ve got the cheap goods and the consumer is better off in the short term. But if the town loses its industry, you’ll end up with no consumers either – just beggary.
Fifth, I concede that free trade produces cheaper goods. It does. But is it right to prioritise price over all other things at all times? It’s the Sergeant Wilson question – Is that terribly wise? What about security? How safe is our supply of food, energy and military hardware? If the pandemic, the war in Ukraine and the energy crisis teach us anything at all it should be that sometimes security trumps price. I think German industrialists who have lost their cheap Russia gas may agree on this point.
Sixth, a great deal of ‘free trade’ is not fair trade. We face mercantilism and non-tariff barriers but we also buy goods produced using modern slavery. Should British workers compete with pittance wages/slave labour? I think not, and I think we’re far too indifferent to this. So… should we ban imports produced by slavery? Yes. Is that also a form of protectionism? Yes. Is this point unarguable? Yes.
To finish, our current system of international trade has created huge economic imbalances which need correcting. I’m not advocating bone-headed trade wars, autarky or a ‘Bennite’ siege economy. I am asking for greater freedom to re-industrialise, to protect strategically important sectors, for nation states to make some of their own social and economic bargains. And they should do so without being fettered by unelected supranational committees. After all, this is why many of us on the economic left voted to leave the EU. Thankfully, we’re seeing a paradigm shift away from the global towards the local. And for the first time in 40 years, protectionism is now a legitimate political choice. Good. Not before time.
