I mentioned briefly when we met a couple of weeks ago that the UK should declare unilateral free trade as it leaves the EU. We didn't get time to explore the thinking behind this so I have collated here some articles which set out the case, very compellingly in my view. First, an article in today's City A.M.  

Roger Bootle, whom I know you respect, has also proposed unilateral free trade. I believe you published this article when it first appeared.

He says "If we declared unilateral free trade, we would immediately cut through the doubts concerning a possible trade deal with the EU and put ourselves in the driving seat with regard to any future negotiations. Because this policy would involve abolishing tariffs on imports from the rest of the world, it would reduce prices and intensify competition in the UK market. Continental exporters would find they would only be able to sell to us at lower prices. The industries that would suffer, such as the German car industry, would put pressure on their governments for a deal with us, which we might accommodate – if it suited us. With one bound, we would be free."

Bootle was one of the very few economists who actually analysed the pros and cons of EU membership and published a book (The Trouble With Europe) arguing the case. Few politicians or economists went to such lengths. One who did is Patrick Minford. He has also written compellingly on this topic and the pdf attached goes into the issue in some detail.

The counter-argument has been put by Martin Wolff in the Financial Times in an article titled "Brexiteers' idea of unilateral free trade is a dangerous fantasy."

This was written before the referendum, and is in tune with the FT's opposition to leaving both before and after the referendum outcome. He finishes by dismissing the idea saying "Forget free trade: the UK will not return to the 19th century." Oops... wasn't that the century in which Britain was Great?

Wolff appears to favour tariffs. In contrast Minford has this to say to those who argue that universal free trade would not work for the UK: "It relies on the idea that under Brexit the UK would move to being a protected economy with tariffs and barriers against the rest of the world including the EU, much as it was back in the 1970s when it was ‘the sick man of Europe’. Yet after three and a half decades of market reforms since those grim times, the UK is now largely a free market economy and Brexit would allow it to join the global market as a free trading nation, able to buy its goods and services from the world market at world prices, and ready to sell its products to the world at those world prices too.

Incidentally, the most egregious article I have seen was this one in the FT arguing that voters should not have been given a referendum as the decision was too complicated (presumably for lesser mortals than the author.)

Incidentally, the most egregious article I have seen was this one in the FT arguing that voters should not have been given a referendum as the decision was too complicated (presumably for lesser mortals than the author.)

What the author conveniently forgets is that the decision to join was made by referendum - presumable he was OK about that. Then, despite his argument that we are not wise enough to decide these things by referendum, he illogically finishes by arguing for a second vote! I guess this is in true EU style: 'Come on you peasants, vote until you give the right answer.' Emotion always trumps reason once belief and self-interest are involved.

I lived and worked in Switzerland for a while and became impressed with their referendum system, held several times each year with many questions each time. The politicians role is to implement what the voters want. Switzerland may be the only true democracy on the planet, and the country wonderfully exemplifies the complete opposite of the attitude in that FT article and the attitude of the EU. Switzerland has a record of many centuries of effective governance and harmony despite having 4 totally distinct races and languages. It's also one of the wealthiest countries perhaps because of these factors. If the EU had been established on the Swiss model maybe it could have achieved similar prosperity, harmony and long-term survival as Switzerland. But the EU model is in many ways the opposite.

As you know, I voted Remain. I could have voted either way, but the desire to avoid breakup of the UK swung my vote. But now that the democratic decision to leave has been made I am fully behind the decision and actually rather happy about it. But we could mess it up by haggling deals with an EU which will be unable to do anything fast or effectively and which will assume it has the upper hand. During my long career as a senior executive in industry I attended several coaching courses on negotiation skills. The most important thing I learned was the concept of BATNA - be very clear what is your 'Best Alternative To A Negotiated Agreement.' You are negotiating from a very weak position if you are not absolutely clear about how you can reasonably walk away. If there is no negotiated agreement with the EU then the willingness of the UK to open to free trade across the world is by far the best option. It may anyway be the best solution.

Which leaves my one remaining concern, the stability of the UK. Phillip Johnson outlined one potential solution that makes very good sense to me, if not maybe for a certain power-hungry politician in Scotland! Though her country-folk may be wiser than her if it came to a vote.

What are your thoughts for and against unilateral free trade?  Do you see any major negatives?

Best wishes

David Fuller's view

Thanks for a terrific email, certain to be of interest to subscribers in the UK, Europe and probably beyond.  I also appreciate the informative links and reports. 

Replying to your points, I have also posted Telegraph articles by Patrick Minford, Roger Bootle and others on free trade.  It makes sense as we will obviously want to be trading with the world, where possible, not just the protectionist, socialist, slow-growth EU.  Also, we do not want to be slavishly following the EU’s tortuous rules on leaving the Eurozone, which are mainly designed to lock countries in.  

Free trade is desirable, I believe, although it is certainly not without risks.  A number of our industries will be alarmed over the prospect of free trade, even if we have reciprocal agreements with many countries.  China springs to mind, as does any other country with state-controlled industries.  Consider steel - how can you protect Port Talbot or any other industry which China would like to bankrupt through state subsidies, so that they would have greater access to our market? Perhaps we don’t trade with China, although I would be reluctant to close doors on any important country.  Perhaps we need to have a few strategic industries, such as Port Talbot steel, which receive preferential treatment such as very inexpensive energy, for instance.  Other companies would want similar subsidised benefits, but then we would be moving away from free trade. These are challenges, albeit manageable.

Re the FT, it has some good columnists and contributors but too many bad ones in its desire to be the EU’s socialist business (oxymoron?) English language paper.  The article by Richard Thaler is shocking, as you point out. 

Your experience in Switzerland served you well and it is certainly the best example of effective, small-government democracy, in my opinion.  I very much agree with what you say, and the Swiss also had the wisdom to anticipate the EU’s faults.  Interestingly, so did Enoch Powell and Tony Benn, as I mentioned earlier this year. 

Returning to UK Brexit strategy, I am confident Theresa May will not be bored following her holiday.  This will most likely be her greatest challenge.  She is highly skilled and I assume will be well briefed on the views of Patrick Minford, Roger Bootle and others advocating free trade.  She will also know that the ground is shifting, metaphorically speaking, beneath the EU.  It may be wise to see how some of this plays out over the next year, not least due to important elections in Germany, France and Italy.

Lastly, thanks so much for Patrick Minford’s report, posted above.  I have only had time for a quick glance but look forward to reading it carefully.