Tuesday, 16 June 2015

Free trade is a good/bad thing

The British Empire was founded on free trade. In "England", ie the UK, we made stuff and sold it to the empire, while the empire grew stuff and sold it to us, eg the Americas sent us cotton and we sent back clothing. Trade was free within the empire and everyone got richer as a result. The set up was a result of the industrial revolution. We had the world's first manufacturing economy, and they had slaves cheap labour.

Post-empire, after WWII, there was GATT - the General Agreement on Tariffs and Trade which kept trade free for several decades at least within the former empire (now rebadged as the "Commonwealth").

Eventually GATT was not sufficient, more countries wanted in on the deal and the WTO (World Trade Organisation) was created as a subsidiary agency of the UN. This pretty fast turned into a talking shop where for no obvious reason all the talking took place in Doha, Qatar, despite the WTO being headquartered Geneva, Switzerland.

But now we have a new deal on the horizon: TTIP, the Trans-Atlantic Trade and Investment Partnership. The idea of TTIP is to rope even more countries into a free trade agreement. The principals are the USA with its North American Free Trade Association (USA, Canada, Mexico) and the EU (28 member nations) with the possibility of bringing in other countries over time, mainly those with "most favoured" status with the USA.

If free trade is good then one might assume the bigger the free trade area the better. If every nation tried to be self-sufficient we would all be poorer. If the UK had to grow its own cotton we would expend so much effort trying to get a cotton plant to grow in a greenhouse than we would barely have time to to tend our sheep whose wool grows with little effort.

There is an economic multiplier effect if every nation concentrates on what it does well. There are downsides, notability the cost of transporting goods, and also decreased security of supply (this tends to be ignored until you are at war and then it is the only thing people talk about) but overall there is a net gain - all are richer.

There is one, usually unspoken, condition: trade must be balanced. If cotton is moving one way across the Atlantic then clothing must be moving the other way. If trade is unbalanced for an extended period of time then the net exporting nation will end up owning the net importing nation.

From a UK perspective this is not a problem in TTIP. We sell more to the Americans than they sell to us so the trade imbalance is in our favour. It is not such good deal if you actually are American. And TTIP, not surprisingly, is a British initiative. The Americans seem to be going along with it though.

But all is not what it seems. TTIP is not actually just a free trade agreement, not in the classical sense. It does not just open the ports to raw materials and manufactured goods. It is also "free trade" in "services" and "investment". This is new, and rather sneaky. It is one thing to buy and sell goods openly in the world marketplace, and quite another to let services slip under the trade barrier.

When you sell a service, eg an insurance policy, to another nation, nothing of value moves across the border. Cotton can be worked into clothing and sold back to the cotton-seller. An insurance policy is a dead-end piece of paper, it cannot be improved and sold back, it is not the basis of "trade" in any meaningful sense. It is a one way deal where the buyer hands over money they would better have kept at home. Even if the buyer country immediately sells an insurance policy back at you, it is still zero sum. It can never be more than zero sum and so is pointless. And it is likely to be far less than zero sum for some members of TTIP.

Trade in "investment" is equally bad news. Exporting clothing is fine, selling the actual clothing factory is a stupid idea. Once you have sold the factory no matter how hard you work and how much clothing you export you are still enriching someone else.

So TTIP is not something in any nation's interest. It does, though, favour a rootless oligarchic class which owes loyalty to no particular nation and is happy to see them all suffer for the profit of the few. TTIP is portrayed as an old school free trade deal but it is really more of a Trojan horse.

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