Unilateral free trade is the key to prosperity

Article by John Blundell in The Business

IT is one of the minor glories of the US Constitution. Article One, Section Nine denies the power to the federal government to impose any export taxes. Why did they write that in? It was because the ludicrous protective system operated by Britain so exasperated the colonists.

The flip side of export taxes is import taxes – tariffs. These barriers to trade have been slowly coming down since the multilateral trade agreements under the General Agreement of Tariffs & Trade (GATT) and now under the World Trade Organisation (WTO). These permanent jostlings to open markets since 1947 are the main reason we are so prosperous. Yet, while I’m happy to applaud these successes, everyone seems to forget the happier and easier option to all these multilateral huffings and puffings – unilateral free trade.

The three great patron saints of free trade ideas are Adam Smith, David Ricardo and John Stuart Mill. They were advocates of unilateral free trade and thought the endless wranglings to negotiate harmonious mutual tariff reductions largely wrong-headed.

My guess is not many readers will have got past my first invocation of that term “multilateral”. It has a certain glow of tedium; all jargon does. But I feel sad that an ideal as noble as free trade gets hidden behind the fog of the WTO. It loses all urgency or morality. “The Kennedy Round” of opening international trade was admirable. So is the present “Doha Round” currently juggernauting its way to failure in Hong Kong next year.

The great moments in the history of free trade are those episodes when tariffs were scrapped. It happened in antiquity. It happened in medieval city states. The results were great surges of prosperity. Athens was a free trade centre. Venice was a free port – not a museum. Amsterdam was a free port too. After the smashing of Britain’s Corn Laws and other tariffs in 1846, Britain flourished.

Economic historians argue that Richard Cobden, the brilliant exponent of free trade, is also the father of its weaker cousin – multilateralism. In 1860 he negotiated reciprocal trade liberalisation with France. In Cobden’s mind, and that of his French equivalent Chevalier, was the fertile and beautiful thought that free trade is the basis not just for commercial dynamism but of peace too. They were at one on that important idea with the great French economist Frédéric Bastiat, who taught in the mid-19th century, “if goods don’t cross borders then armies will”.