The late Sir George Martin [producer and arranger of The Beatles] created substantial British exports. Had the import of his music to America been banned to save the jobs of US musicians, Britain would have missed out on some revenue but the American consumer would have been the biggest loser, missing out on the music. Trade benefits the importing country: that’s why it happens.
Frankly, we might as well be living in the 17th century, so antiquated are our current debates over trade, both here over Brexit and in America over the presidential nominations. Many current assumptions about trade were debunked more than two hundred years ago and then tested to destruction in the mid-19th century.
In the 17th and 18th centuries European governments were in thrall to “mercantilism”, the belief that the purpose of trade was (roughly) to push exports on to other countries in exchange for cash and so build up a surplus of treasure with which to pay armies to fight wars. So they sought to restrain imports with tariffs and bans, while encouraging exports with monopolies and gunboats. Britain’s Navigation Acts after 1651, and the chartering of companies such as the East India Company, were part of this policy.
Along came Adam Smith and made a different argument, that mercantilism punished consumers and the poor, while rewarding producers and the rich; that imports were a good thing because they raised people’s standard of living by giving them what they wanted at lower prices. With money to spare, consumers bought more things from producers, creating jobs and generating prosperity. If bread was cheaper, people could afford more textiles. Gradually, with the help of David Ricardo and John Stuart Mill, Britain was persuaded of this and by the time Robert Peel, William Ewart Gladstone and Richard Cobden were in charge, Britain had declared unilateral free trade and dared the world to follow.
It is true that unilateral declarations of free trade, while benefiting everyone as consumers, can hurt those producers who have previously been protected from competition by tariffs and other barriers. Because the pain is more concentrated than the gain, their voice is louder, and Donald Trump and Bernie Sanders have been amplifying it. (America has never been as convinced by the free trade case as Britain: its infamous Smoot-Hawley tariffs of the 1930s worsened the depression and hastened war.)
Yet the effect of trade on jobs is no different from the effect of innovation. Just as imported Chinese goods have destroyed the jobs of British manufacturers, so threshing machines destroyed the jobs of farm labourers, washing machines destroyed jobs in laundries and Uber will destroy the jobs of taxi drivers, yet everybody was net better off.
Governments should certainly compensate people for locally destructive effects of changing trade or technology, but not by raising barriers against imports. That just punishes consumers and stifles economic growth.
Ridley denies that the
... European single market is a free trade area. It’s not: it’s a customs union — a fortress protected by an external tariff. And it’s shrinking as a share of world trade.
Ridley thinks, the UK would be better off after a Brexit:
Professor Patrick Minford of Cardiff Business School argues in a recent study that the single market distorts Britain’s economy, making us “produce more of what we are worst at and less of what we are best at, while our consumers have to pay excessive prices”. If Britain left the EU it would gain about 4 per cent of GDP as a result, he calculates.