How does trade benefit you?

Free Trade Lowers Prices - The Channel Group

When we established The Channel Group in 2015, it was in response to a growing protectionist atmosphere globally. Capitalism, the economic system that has lifted millions out of poverty, had become a dirty word and we felt the arguments about free trade needed to be remade. Since then, we have seen the most protectionist President in a century take office in the United States, policies from all the major parties in the UK – including protectionist measures – and a concerning increase in public support for isolationism around the world.

Over the course of the last century, America has led the way globally in promoting and supporting tariff reduction and the core principles of free trade. The last truly protectionist president was Theodore Roosevelt who said of protectionism in 1902; “The country has acquiesced in the wisdom of the protective-tariff principle. It is exceedingly undesirable that this system should be destroyed or that there should be violent and radical changes therein. Our past experience shows that great prosperity in this country has always come under a protective tariff.”

Since then, every president, however vociferously, has supported the principles of free trade, until now. Donald Trump has repeatedly claimed to be “pro free trade”, but clearly doesn’t share our, or anyone else’s view, on what that actually means. In 2011 Trump said “If we want jobs in America, we need to enact my 5-part tax policy: . . . eliminate corporate taxes in order to create more American jobs; mandate a 15% tax for outsourcing jobs and a 20% tax for importing goods”

In the UK, we have also seen moves towards protectionism included in the all the main parties’ manifestos and a concerning call for Brexit to be more about isolationism that embracing the opportunities it gives us to trade with the rest of the world.

We have repeatedly been asked over the last two years, “what does free trade actually do for us?” To answer this, it is crucial to first understand what free trade actually is. True free trade is the elimination of all tariff barriers to trade and any other impediment to goods and services moving from one country to another. This can include anything from customs forms and bureaucracy to individual product standards, quotas, regulation or subsidies.

Free trade helps us all because, by eliminating the costs to trade, consumers have to pay a lower price for goods, therefore lowering the cost of living. Free trade also allows for greater economies of scale, lowering prices further. One criticism of free trade is that is creates unemployment as jobs move overseas, but this is simply not the case. It is clear that exports create jobs, but there are claims that the opposite is true and that imports lose jobs. However, as shown by the chart below, this is not the case, employment levels have remained stable despite increasing imports. Furthermore, according to the OECD, over the 1970-2000 period, manufacturing workers in open economies benefitted from pay rates that were between 3 and 9 times greater than those in closed economies, depending on the region.

 

The economic impacts of free trade are also enormous. Take the NAFTA agreement between the US, Canada, and Mexico, of which the US is considered to have benefited the least. Despite the higher benefits for Canada and Mexico, the agreement has had a positive impact on the US to the tune of around $80 Billion per annum, according to the Congressional Research Service.

We are also repeatedly asked: “Is free trade a right wing pipe dream?” and the response to this is always simple: no.

If lower prices and the economic benefits are not enough to demonstrate why everyone should back the idea of free trade then there are also two further key benefits that everyone must support, the reduction of poverty and the prevention of war.

Trade liberalisation helps poorer countries catch up with richer ones and this growth helps to alleviate poverty. The Director-General of the WTO Michael Moore said “although trade alone may not be enough to eradicate poverty, it is essential if poor people are to have any hope of a brighter future. For example, 30 years ago, South Korea was as poor as Ghana. Today, thanks to trade led growth, it is as rich as Portugal.”

Following World War II a series of agreements and organisations to promote trade have been created bringing countries closer together. This vital increase in agreements between countries to foster good trade relations has also encouraged countries to work together on other issues reducing the risk of conflict. Crucially increased levels of trade make war more costly, as a country would not only have to fund the military engagement, but also lose out on the economic benefits of trade with the nations they are in conflict with.

The Channel Group’s mission is to highlight all these benefits, to reaffirm the arguments for free trade and to dispel the rumours and myths about liberalised global trade. If we are to continue striving for economic growth, the reduction of poverty, a lower cost of leaving and peace around the world, we must fight for a truly global system of free trade.

To support the Channel Groups work in championing free trade, click here.

Toby Illingworth

Toby Illingworth

Partner at The Channel Group
Toby is a Partner of The Channel Group. In addition to his work at The Channel Group, Toby is also the Executive Director of New City Initiative, a think tank representing SME asset and wealth management firms in London and across Europe.
Toby Illingworth

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