The annual Conservative Party conference commenced last Sunday, and the media focus was mostly about the Government’s stance on Brexit.
This is hardly surprising, because Mrs May is being secretive, avoiding stoking a public spat with the EU by negotiating in public. The only hard news to emerge was that Article 50, formally giving notice of Britain leaving the EU, would be triggered by the end of March, in other words before the end of this tax year.
Brexit is mostly about trade deals, which is why big business is lobbying furiously, and EU functionaries are winding up their punitive rhetoric. In the US, Donald Trump has also wound up the rhetoric over trade, threatening to tear up NAFTA and refuse to ratify the trans-Pacific partnership. He also attacked China, accusing her of stealing American production and jobs. We should never believe anything a politician says on the stump to gain votes, but if nothing else Trump does seem to have identified electoral resentment on the trade issue.
This article looks at the theory behind trade, and finds that free trade, not the promotion of vested interests, should be the clear economic objective. But it also concludes that differing approaches to this thorny subject could accentuate the split between world trade into two separate streams, between fast-growing emerging economies and an increasingly sluggish old order.
Corn laws and Smoot-Hawley
Free trade first became a political issue in Britain when the 1815 Importation Act, which imposed tariffs on imported grain, led to artificially high grain prices, benefiting landlords at the expense of the poor. This was repealed by the Importation Act 1846. These Acts were known as the corn law and its repeal respectively.
The debate prior to the 1815 Act is echoed today, with producers always seeking to disadvantage foreign competition to the detriment of the consumer. However, there’s every reason to believe that the abolition of trade barriers and tariffs would be similarly beneficial to contemporary economies as the Importation Act 1846 was to both Britain and the global economy then. Equally, if this is true, then trade restrictions and tariffs hinder economic progress, and any country embarking on greater trade restrictions is therefore pursuing a deliberate policy of unemployment. For evidence that it is indeed true, we need look no further than the catastrophic introduction of the Smoot-Hawley Act of 1930 in the US.
This post was published at GoldMoney on OCTOBER 06, 2016.