Should Liberals still believe in ‘free trade’?

Commitment to free trade has been one of the core elements of British liberalism for nearly 200 years.  It went along with peace through open borders and shared prosperity, with opposition to aristocratic landowners and cheap food for the working man.  There’s a picture of John Bright (joint founder with Richard Cobden of the Anti-Corn Law League) in my living room, inherited from my wife’s Liberal forebears.

The economic liberals who left the Liberal Party in the late 1950s to set up the Institute of Economic Affairs still do believe.  For them it’s an article of faith as much as their commitment to a smaller state and a deregulated economy.  Liz Truss, a student liberal transformed into an ideological free marketeer, is celebrating the conclusion of the UK-Australia Trade Agreement and promising more deals to reduce tariffs and lower regulatory barriers. Our party press office has criticised her for neglecting the interests of British farmers – not something that Bright or Cobden would ever have said.

But trade isn’t as simple as it was.

Other issues that Bright never imagined now intervene.  Animal welfare and hygiene, permissible antibiotics and other phyto-sanitary standards shape global trade in food as much as tariffs – as we’ve seen in negotiations with Australia, the USA and the EU.  Excesses of globalization, leading to over-dependence on dominant suppliers in computer chips, scarce metals and their processing, are leading to renewed concerns about ‘reshoring’ manufacture of key components and materials.  Human rights concerns also intervene, not only about forced labour in China but also about sweatshops in Bangladesh and beyond.

China’s drive for manufacturing and technological supremacy has also unsettled free market disciples, with calls for ‘fair trade’ and reciprocity to curb China’s rising structural surplus.  Conservative Brexiteers who have argued that geography no longer matters in trade are facing criticism from environmentalists who point to the significant pollution that container shipping and airfreight create.  Sustainability for our economy and environment, and arguably provision of work for all our citizens, present arguments against entirely open borders and minimally-regulated trade.

Dani Rodrik, a Turkish-born Harvard economist, has argued against many of his colleagues that unrestricted globalization is incompatible with democracy, and that we have to limit globalization in order to maintain and strengthen democratic government and open societies.  Chicago-school economists supported General Pinochet’s authoritarian regime in Chile, 30 years ago, accepting its prioritisation of free markets over civil and political rights.  Fewer economists would do so openly today.  Last week the Financial Times proclaimed that ‘the Washington consensus’ (a term coined by an active British Liberal, John Williamson) on deregulation and freer trade is giving way to a new consensus on more active government and more directed national economies.

Our Conservative government, Liz Truss above all, look to be clinging on to outdated ideas in a technologically-transformed world.  Boris Johnson is as incoherent on all this as on everything else, promising major investment to level up and build back better and setting up a new agency for strategic research.  President Biden is way ahead of him, pushing Congress to pledge the funding for another New Deal.

What’s our response to inherited economic certainties in a period of rapid change?  I’m not an economist, nor a data scientist, micro-biologist, environmental expert or electronic engineer.  I think I understand that the pursuit of ‘free trade deals’ that focus on the reduction of tariffs are scarcely relevant to the challenges governments and societies will face in the next decade; and that efforts to lower standards and regulations are likely to be counter-productive.  Truss’s faith in free trade looks like Frost’s faith in national sovereignty: 19th-century principles that do not fit our current world.  (Another underlying contradiction in this government’s thinking is that 19th-century sovereignty went with protectionism: open economies, then and now, require international cooperation.)

But I don’t yet understand what form the emerging economic consensus is likely to take, or how we campaign to ensure that what emerges is made  compatible with open societies, local and national communities, and a peaceful global order.  What should a Liberal approach to building a more sustainable economy in a sharply contested world order look like?

* William Wallace is Liberal Democrat spokesman on constitutional issues in the Lords.

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  • Phil Wainewright 19th Jun '21 - 1:20pm

    The 19th-century concept that Liberals should reject is nationalism, and the all-or-nothing protectionism that goes along with it. Today’s thinking has to be more nuanced.

    In the 21st-century, when we’re all globally interconnected, I don’t see how you can restrain the right to trade freely across borders in democratic societies. But at the same time a Liberal society will want that trade to be subject to internationally agreed regulation on common standards on the environment, human rights, etc. So we should argue for free trade within an internationally responsible framework.

    I think LibDems would also want those common standards to respect the rights of local communities to pursue policies that support the local economy (along the lines of the Preston model). Not by outright protectionism, but by allowing some leeway to favour local suppliers when bidding for contracts, for example. (Ideally you would support this with policy measures to strengthen the political and economic framework of those communities such as LVT and STV).

    In short, a combination of globally open and responsible with locally supportive.

  • I suspect that all the arguments you cite against free trade were used by proponents of the corn laws. And the arguments of Richard Cobden stay as relevant today as then. The historian Asa Briggs says that Cobden said that repeal of the Corn Laws would solve four great problems:

    “First, it would guarantee the prosperity of the manufacturer by affording him outlets for his products. Second, it would relieve the ‘condition of England question’ by cheapening the price of food and ensuring more regular employment. Third, it would make English agriculture more efficient by stimulating demand for its products in urban and industrial areas. Fourth, it would introduce through mutually advantageous international trade a new era of international fellowship and peace. The only barrier to these four beneficent solutions was the ignorant self-interest of the landlords, the ‘bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering.”

    ( Asa Briggs, The Making of Modern England 1783–1867: The Age of Improvement (1959) p. 314 – via Wikipedia)


    That essentially remains as relevant today as then except it doesn’t apply just to food but to all goods and services.

    Throughout history inefficient or poor quality domestic manufacturers and producers have lobbied Government and politicians – and said that we “don’t want any of that foreign rubbish here”. “Support Britain”. Of course it is right that anything sold here meets the relevant health and safety and technical requirements. And there are issues over animal welfare and carbon emissions etc. But these can more than dealt with through trade negotiations.

    And I have a bright idea – why don’t we have a single market with a nearest European neighbours so we have common minimum standards and trade freely with no red tape!

  • Free trade is part and parcel of the post-war institutions that delivered peace and prosperity. 1947 saw the introduction of the General Agreement on Tariffs and Trade (GATT) as a result of Bretton Woods Agreement among 23 nations. Gatt aimed at initiating an international trade, by liberalizing policies and removing tariffs. It was succeeded by World Trade Organization (WTO), a global organization, that encourages and facilitates inter-country trade and also helps in resolving trade disputes.
    The European Common Agricultural Policy recognised the precarious position of farming
    and was developed in 1962 to ensure security of food supplies as well as ensuring farmers could work in a sustainable and environmentally friendly manner to maintain our soils and biodiversity.
    China’s entry to the WTO has allowed that country to develop into an International trading super-power, like the Asian tigers before her, and dragged hundreds of millions out of abject poverty. The rise of China with its own form of state capitalism has challenged the post-war institutions across numerous industry sectors and brought the issue of globalisation to the fore.
    Common sense dictates that supply chains should be sufficiently robust and diversified so as not to concentrate reliance on a single country or firm for essential goods and services.
    Whether it is bi-lateral trade agreements or enhancement of the WTO, free trade will remain key to International peace and prosperity.

  • Steve Trevethan 19th Jun '21 - 4:32pm

    Are there any human activities which, without optimal regulation, stated and unstated, do not benefit the more powerful to the cost of the weaker?
    Why should trade be considered as not needing optimal and equitable regulation?

  • We tend to look back to the 19th century as the great age of free markets, free trade and small government. However, it was also a great age of migration. Many people from the British countryside migrated either to Britain’s growing cities and industrial areas, or overseas, to the USA or the British Empire.
    The 19th century was an age of small government in the sense that Britain was not a welfare state. However, the government ran massive job creation schemes, which provided large numbers of people with jobs, incomes, opportunities and an honoured place in society: the armed forces and the British Empire.
    It is necessary to realize that all these phenomena formed a single, inter-connected social, economic and political system.

  • What is needed is an acceptance that we as humans need to accept responsibility for what we are doing. We need to get ourselves away from dogma and “isms” and recognise the reality of what we are doing to the planet we live on.
    Then we might see the reality of what has been achieved. Some of us live in a time of huge prosperity. Look at what our “isms” have achieved we say. And yet we see on our televisions or our internet the millions of people who live in famine conditions, are the victims of warfare. We see the ways in which we have polluted the land we live on, the water we need, the air we breath. We have altered all of the ecosystems on our planet. The vast majority of the larger animals on our planet are either ourselves or the animals we have domesticated. And we are even now polluting the space around our planet.
    And yet we have made almost no changes in the way we manage our own societies. In our country we live in an elective dictatorship, – not sure what “ism” this is.
    We need to start looking at the reality.
    I see little sign that this will happen.

  • Peter Martin 20th Jun '21 - 7:29am

    We really should start from the basics and look at international trade for what it is: the swapping of one thing for another. So, for example, we in the UK are swapping jet engines, Scotch whisky and whatever else we make, or provide the services for, for German cars and Korean mobile phones etc. The providers aren’t necessarily the winners and the receivers aren’t necessarily the losers. This isn’t the general view though. It is much more usual for countries to wish to export much more than they import. The difference is erroneously seen as their ‘profit’ or winnings.

    There are strategic considerations. It wouldn’t be smart to rely too much on one country to supply a high proportion of our food for example. We learned, or should have learned that lesson during 20th century wartime. We do seem to be in the process of unlearning that and haven’t had the good sense to realise that it is false economy to close down much of our industrial capacity simply because it is now cheaper to import what we used to make ourselves. It is cheaper to import steel now, but may well not be in the future.

    Neither is it smart to allow the surplus countries to spend on whatever they like. It wouldn’t be allowable for anyone to buy up strategic defence industries. But we do allow wealthy foreigners to buy up expensive London property even though it ends up empty for much of the time. Should we? I’d say we should not, but this may be a minority view.

    The concept of the Nation State has fallen into disfavour with many on the progressive left. The argument is that we need to pool our sovereignty to be able to stand up to the multinational companies which are said to control our trade. But are we as helpless as we think? Firstly, we should recognise that they do not have the power we often assume they have. Nation Sates make the laws, have armies, police forces and tax inspectors. If we in the UK decide that a particular multinational isn’t paying enough tax we can change things in our favour. We don’t do that because we think we can’t rather than because we lack the power to do so.

    Bill Mitchell addresses these issues in his book ‘Reclaiming the State’.

  • Nonconformistradical 20th Jun '21 - 7:45am

    “We need to start looking at the reality.
    I see little sign that this will happen.”
    Nor do I.

    What I see in this time of lax regulation is increasing economic domination by the very wealthy and powerful few at the expense of the many.

    When Bezos become the only significant retailer on the planet – does that matter?

  • Tristan Ward 20th Jun '21 - 10:42am

    Yes liberals should undoubtedly advocate free trade.

    It makes both sides of the trade richer than they would otherwise have been, bringing wealth to the poor in every country, benefiting those who produce (profits) and those who consume (lower prices) . It binds trading countries together.

    There is one big caveat in a world facing ecological crisis. That caveat is that ALL costs must be internalized. That means – ultimately – those who consume must pay the costs of their consumption. More crudely and by way of example if you import (say) sheepmeat from Australia, you must pay the actual monetary costs of the additional carbon emissions of the trade and production in comparison to costs of carbon emmissions of production and transport in the UK (or (say) New Zealand or the EU.

    The EU is talking about a Carbon Border adjustment mechamnism to address these issues ( Liberal Democrats should advocate something similar, both to prevent Birtain “contributing” to carbon reduction targets by simply exporting carbon emissions, and to keep alignment with the EU in hopes of eventual rejoining.

  • I just hope, that the opponents of the free trade won’t condemn the poorest countries and their inhabitants to stay in powerty by denying them the possibility to sell their products and services to more developed countries.

  • Peter Martin 20th Jun '21 - 1:39pm

    There’s probably no such thing as ‘free’ trade. But nearly everyone would agree that it should be as free as political considerations will allow.

    It’s always worth keeping in mind Lerner’s symmetry theorem which states that:

    “an ad valorem import tariff (a percentage of value or an amount per unit) will have the same effects as an export tax. The theorem is based on the observation that the effect on relative prices is the same regardless of which policy (ad valorem tariffs or export taxes) is applied.”

    This is possibly counter-intuitive but it is telling us what we already should know. ie That when import tariffs are applied they don’t necessarily net benefit the importing country. A lesson that the EU PTB might like to re-acquaint themselves with when they are threatening us with tariffs on our exports if we don’t fully toe the line on the Brexit agreements.

    According to Lerner they could equally well threaten to put tariffs on their exports to us!

  • Peter Hirst 20th Jun '21 - 2:26pm

    Free trade needs to be balanced with other values such as sustainability, equity and strong societies. The days of strict adherence to one at the expense of others is no longer a viable strategy. Governments have the challenging task of deciding individual choices within the complexity of modern politics that will result inevitably in inconsistency.

  • @Peter Martin

    Some good points

    1. “The providers aren’t necessarily the winners and the receivers aren’t necessarily the losers…. The difference is erroneously seen as their ‘profit’ or winnings.”

    This is important. I’d invite people this to consider fruit salads! People in country A have a climate suited to growing strawberries and country B bananas. But both are happier eating a fruit salad of strawberries and bananas. They trade strawberries and bananas and they can both have fruit salads!!!! A win-win situation!!!!

    2. Industrial capacity and “special pleading” by industries.

    This needs to be treated with caution. It might have been said in the 70s that the car industry was of strategic importance and we should ban foreign car imports and protect British Leyland and subsidise it. If we had done that we probably still be driving around in terrible Austin Allegros and our other industries would have suffered as they would have had to have borne the cost of the taxes in subsidies to BL.

    Today actually we make more cars than the ’70s – so protecting industries can also be counterproductive even for the industries themselves.

    We should of course support industries and people in retraining and making the transition to the new.

    And on industrial capacity. It is a little more complex. Take an iphone. The chips may be designed in the UK in Cambridge but made in Taiwan. And it’s all assembled in China. Which country “makes” it?

    In fact we are probably in the “best” bit. It’s high value-added. In assembling stuff we are going to have to compete with robots and billions of cheaper labour in developing countries. So, largely we want to be more in the high value-added “intellectual property” end of manufacturing and less in the low value-added “assembling” end. Higher GDP. And largely jobs people prefer over monotonous assembly line work.

  • @PEter Martin
    3. On the nation state v globalisation.

    I think you are right that the Left today can underestimate how crucial the nation state has been in achieving many of its objectives. The welfare state. The NHS. Taking on industry to pollute less and provide better health and safety at work. Through the power of national enforcement and collective action and provision. People will bear having money forcibly removed from them in the form of taxes because they can see they are going to help people like them – their fellow countrymen. It is why the Left should not view patriotism as right-wing racism.

    But we can also do this at an international and regional (e.g. European) level. It’s why the left became more enthusiastic on Europe. Before national standards on pollution, a company could say they were moving their factory and jobs to pollute somewhere else. Now there is a role for every level from hyper-local to the completely international. And the national level – the nation state – is crucial as it has been the “correct” level to organise much. And the “fiction” of a country has been created at that level – democratic institutions, flags, sporting sides, armies, “tribal” bonding. But we were once much smaller – tribes. And we now need to find better ways of expanding beyond the national to the supra-national and creating responsive, democratically accountable supra-national bodies – um… such as the EU! (Oh dear – I probably shouldn’t have mentioned it!) to help cope with externalities such as carbon emissions and much more besides….

  • Nonconformistradical 20th Jun '21 - 3:09pm

    @Peter Hirst
    “The days of strict adherence to one at the expense of others is no longer a viable strategy.”
    Viable or not – I perceive that’s what the very wealthy few want. Repeating what I said earlier:
    What I see in this time of lax regulation is increasing economic domination by the very wealthy and powerful few at the expense of the many.

    When Bezos become the only significant retailer on the planet – does that matter?

  • Steve Trevethan 20th Jun '21 - 7:24pm

    An opposite of the “Free Market” is austerity. Austerity is the result of planned policy decisions made by government and corporations, Austerity is the opposite of economic democracy.

  • Peter Martin 20th Jun '21 - 8:16pm

    @ Steve,

    I would agree with much of the Counterpoint article, but not all of it and not the bits you’ve quoted.

    First of all, we should say that economic austerity is a counter inflation policy. If the economy is overheating then a touch of austerity, putting on the brakes, applying a fiscal squeeze, or whatever you want to call it, is in order to slow the economy down and reduce the inflation risk. It is NOT in order to try to “correct” a Govt budget deficit. That can only be done by intervening to lower the currency to reduce the trade gap, or encouraging more private sector borrowing by lowering interest rates.

    So having said that, there is no reason why we can’t have a correctly regulated economy with the correct policy decisions by Govt and business. At the same time, austerity, or I would prefer to call it a fiscal tightening, when correctly applied, need not be anti-democratic.

  • Steve Trevethan 21st Jun '21 - 6:39pm

    Might austerity indicate that the market is not self stabilising?
    Might such indicate that the currently dominant economics flawed?
    Might classic Keynesianism be seen as an inverse form of austerity?
    Might équitable and efficient taxation be a more equitable regulator of inflation?
    Might austerity be seen as a form of tax on the not wealthy?
    Might austerity be a form of taxation on those who can afford it least as it, proportionally, removes most money from the poorest?

  • Peter Martin 22nd Jun '21 - 10:58am

    @ Steve,

    No. Austerity isn’t any of those things per se. It’s just another term for fiscal tightening. ie Cutting back on Govt spending and/or raising levels of taxation.

    To repeat, austerity/fiscal tightening is a counter inflation policy and needs to be used correctly. ie to cool an overheating economy. It doesn’t work to reduce a Govt deficit.

    If the Govt reduces its spending it cuts its own income. If it raises taxes it slows the economy and also cuts its own income.

    What does work is reducing interest rates which increase the level of activity in the economy, increasing the Govt tax take and reducing the incentive of the overseas sector to purchase Govt bonds. But as they are now almost zero that’s no longer an option.

  • The author asks an important question which goes to the root of a key issue in contemporary politics.

    In its day, the Anti-Corn Law League challenged the established practice by big landowners of using import tariffs to keep the price of wheat artificially high. That in turn increased farm incomes so landowners could charge higher rents. For their part contemporary industrialists objected that the high price of wheat meant bread prices (then a staple food for workers) were higher than necessary.

    Economists call prices above the cost of production (including a fair allowance for profit) ‘economic rent’. It is ‘unearned’ income and is great for those who get it but bad for everyone else because it puts up their costs. Economic rents are big drivers of inequality.

    So, in the early 19th century this was a dispute between landowning and industrial interests but it’s not clear that the benefits of the ACLL’s eventual victory were widely passed on to workers via higher pay. In a recent comment David Raw quoted one case where the industrialist kept all the benefit by cutting wages. As late as WW1 many working class men turned out to be unfit for military service because of chronic malnutrition as children despite lengthy Liberal dominance in the meantime. ☹

    Nor is it clear that bread prices fell much immediately. AFAIK, wheat prices only fell substantially in the 1860s as new railway lines enabled economic transport from the Austro-Hungarian Empire and then again after 1870 when railways reached the prairies following the end of the US civil war while improving maritime technology simultaneously reduced trans-Atlantic costs.

    The proto-Liberal industrialist side may have styled their stance as ‘free trade’ (who could possibly object to that) but they certainly didn’t take that view when it was against their economic interests – for example with respect to workers’ pay or the trade with the Empire. Hence the massive Indian railway network was never allowed to build its own locomotives and the opium wars were about trade – but certainly not free trade!

  • Today the question of free trade is more important than ever, but the issues aren’t well understood. Over the last 40+ years of Thatcherite/neoliberalist dominance the ideal of ‘free markets’ has been sold hard but what they really mean by that is free of any restrictions on gaining economic rents.

    The modern economy offers far more opportunities for economic rents than that of 200 years ago with the biggest and richest opportunities offered by the broad financial sector and – because there has been no effective opposition for 40+ years – that sector is now bloated and mainly parasitic on the ‘real’ economy comprising both individuals and companies – student loans being just one example.

    Another key mechanism is creating monopolies (or near monopolies) which, because there is no effective market competition, can overcharge, under-innovate, and underinvest – for example until the arrival of Aldi & Lidl on the scene at scale the big four supermarkets were able to achieve huge margins.

    How big these effects are across the economy is hard to say but they are certainly huge, adding to costs and driving inequality. It’s a political open goal for any party with the will to make it an issue.

  • Steve Trevethan 23rd Jun '21 - 11:49am

    Congratulations to Gordon for his insightful comments!
    Since the premiership of Mr. Callahan, we have been subject to a long term austerity in which all three main parties have participated. Perhaps this is chronic, backgrounded austerity. There have also been periods of acute, foregrounded austerity. These come in at least two types. One is politically imposed austerity and another is environmentally based austerity, as is the current Covid crisis.
    All result in the shift of wealth from the not rich to the rich. This is the intention. Evidence of this can be seen in so much economic data such as the increase in the number of starving children and the increase in the number of millionaires, the price of housing and the stock market rises.
    This disparity is exacerbated by Q.E. and HMG’s policy of putting money into the financial sector and not the high street. This advantages the investor group and disadvantages the not-investor group.
    This is the intention.
    If inflation is an an excess of money, then that excess can be taxed out of the system more efficiently by by taxing those with money instead of making the impoverished yet poorer and reducing their opportunities for employment.
    To what extent does economics serve the whole of society?
    To what extent does society serve economics ie. those who benefit from the current system?

  • William Francis 24th Jun '21 - 7:52pm

    With average tariff rates being a fraction of what they were under Gladstone since the 1950s, the old arguements seem won and besides the point.

    Free trade areas based on regulatory alignment like the EU, already solve the various problems associated with globalisation. States have much agency than we were told by the pro and anti globalisation crowd. How much of the American Industrial base could have survived if shareholder primarcy never adopted enmass? Indeed the EU already acts like a grand experiment on the effects of international trade regimes.

    The old adage should be remembered: “If goods do not cross international borders, armies will”. We must not return to the protectionist world of the 1930s.

  • Peter Martin 26th Jun '21 - 9:49am

    @ Steve,

    “If inflation is an an excess of money, then that excess can be taxed out of the system more efficiently by by taxing those with money instead of making the impoverished yet poorer and reducing their opportunities for employment.”

    But it isn’t. Inflation can be caused by an excess of spending which isn’t the same as an excess of money. Some individuals have done financially quite well out of Covid.

    If they keep their money in their bank accounts for a time and spend it in a controlled manner there will be no inflation problem. On the other hand if they splurge spend after the lockdown there could be. There are many others who haven’t done at all well who won’t be able to spend up big time, So I would expect there won’t be such a problem.

    I could be wrong about that. If I am then the government will have to target the spenders and they won’t all be the ultra wealthy. The argument for extra taxes on the very rich is still valid but the motivation has to be different. It is to reduce the level of inequality rather than the level of inflation.

  • Peter Martin 26th Jun '21 - 10:15am

    ““If goods do not cross international borders, armies will”. We must not return to the protectionist world of the 1930s.”

    True enough.

    “Free trade areas based on regulatory alignment like the EU, already solve the various problems associated with globalisation. ”

    Not really. The EU is just as protectionist, if not more so, as any other power bloc. In my own business I am now finding it is much easier to trade with the USA, and many parts of the ROW too, than the EU. The conflict between the USSR and the West was always considered to be ideological. The move to a non Communist Russia has barely improved matters at all and their exports to the EU are still highly restricted. Except when they are oil and gas of course!

    Supposedly this is because Russia is less democratic and more authoritarian than we’d like it to be. However, so is China, but that hasn’t stopped the West expanding its trade there.

    So there will likely be a continued conflict between Russia and the West and caused by a feeling there that the cold war has never ended and was really nothing to do with previous political differences. This will suit Putin nicely.

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