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The UK Should Lead the Way on Free Trade

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Tags Global EconomyTaxes and SpendingPolitical Theory

In an address to the German parliament on April 27, Chancellor Angela Merkel had tough words for the British government. The European Union’s most powerful leader told the Bundestag that the United Kingdom, “cannot and will not have the same rights” after it leaves the union. In other words, the British government should expect European leaders to refuse to negotiate and grant total access to the European market.

These words have been harshly criticized by British Prime Minister Theresa May, who accused the EU of “lining up” to oppose the United Kingdom. While one may disagree with the punitive attitude of European leaders, May’s naïvety is to be deplored: The European Union’s behavior was predictable.

In an ideal world, European governments would consider the fact it is not in citizens’ economic interest to reconstitute trade barriers between individual countries. Unfortunately, Brexit talks are less about economics and more about political power. Indeed, the priority for European leaders is to avoid contagion by containing the spread of Eurosceptic ideas in other member states. That’s why they have a strong political interest in making Brexit “very painful,” to quote Slovakian Prime Minister Robert Fico. It’s quite simple: The European Union’s legitimacy lies in the fact it is regarded as indispensable to protect trade and prosperity on the continent.

If the British economy remains healthy despite Brexit, it would likely harm pro-EU discourses which promised economic disaster without the European Union, and strengthen secessionist movements across Europe. By the same logic, Brussels has little interest in negotiating a trade agreement. Such a move would send a bad signal, showing it is possible to benefit from the European market without the duties and other inconveniences associated with the belonging to the European Union. Its raison d’être would be severely undermined. May should, therefore, expect Brexit talks to fail: there is obviously a lack of will from the European Union to reach a satisfying trade deal.

The British government is perfectly aware of this. That is why it has threatened several times to turn the UK into a tax haven if the EU implements commercial sanctions. By compromising the EU tax harmonization agenda, London hopes to force Brussels to negotiate on equal terms. But European governments’ reluctance to negotiate properly must lead the British government to review its political strategy. Under these circumstances, the United Kingdom’s attempt to reach a trade agreement, at any price, with an uncooperative European Union is inappropriate. This stance will maintain the perception of total asymmetry between Britain and the EU.

Moreover, this attitude is perfectly incoherent when one considers the reasons which led the British people to secede from the EU. Indeed, the decision to leave the European Union was partly a revolt against Brussels’ bureaucracy. Yet, trade agreements are nowadays a means for governments to export each other’s regulations through a regulatory harmonization process. Rebelling against Brussels’ paperwork to fall back into managed trade’s vices is not consistent.

A country does not need the permission of other governments to open its economy to global trade. The British ought to know that. After all, they are the ones who unveiled unilateral free-trade during the 19th century with the repeal of the Corn Laws. As Professor Patrick Minford argued in a note for the London-based liberal think tank Institute for Economic Affairs (IEA), such a policy could be implemented after leaving the European Union. It is a matter of political will. One may fear that unilaterally removing trade barriers, and allowing European producers to trade with the United Kingdom, would deprive the British government of the means to pressure European governments to open their own markets to British firms.

But this is the wrong approach to the problem. This worry implies removing trade barriers is a trade-off, whereas keeping them is harmful. Paradoxically, the British government’s decision to implement free-trade policies regardless of Europe’s behavior would put the UK in a strong position vis-à-vis Brussels. European governments would be obliged to note they are not indispensable to foreign governments to promote free-trade. The European Council would not be able to subtly blackmail the British government anymore — for example through Brexit guidelines that aim to forbid the United Kingdom from implementing more competitive fiscal policies, among other things.

Better yet, this unilateral policy would also be a welcome counterweight to current global protectionist trends. In other words, if May is sincere about her will to promote a “Global Britain,” it is up to her government to open her country. Brussels cannot take the blame for the British government’s inability to defeat local protectionist pressures.

Originally published by Eurasian Review.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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