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Boat Quay in Singapore: The city-state is the top country in the Trade Enabling Index (CC BY-SA 4.0)


Free trade is good for you. Nations that adopt it as the central principle of their international economic policy-making develop and prosper; they outperform nations that restrict imports and limit contact with the rest of the world. That is one of the plainest lessons of the almost two and a half centuries that have followed the publication in 1776 of Adam Smith’s Wealth of Nations, the book usually regarded as the beginning of modern economics and still unequalled as a critique of inward-looking mercantilism. 

Such city states as Hong Kong and Singapore, which began as colonial free ports and retain free trade to this day, have incomes per head which are a multiple of their neighbours. At the other end of the spectrum, the two remaining self-styled Communist polities — North Korea and Cuba — pursue autarky, and are marginalised, backward and poor. Hong Kong and Singapore may be small and exceptional, but they are not unique. Crucially, their success has been an example to others, sometimes much larger and with huge geopolitical significance.

However unattractive the style of government in the United Arab Emirates may be in other ways, it cannot be overlooked that since independence from Britain in 1971 the UAE has been a startling economic success story. From the start the Maktoum family determined that Dubai (and specifically the Jebel Ali Port and Free Zone) should adopt free trade, and commercial policy for the UAE as a whole has also been relatively free and open. The Emirates too have incomes per head that are a multiple of their neighbours.

After the death of Chairman Mao in 1976 China’s political leaders rethought from scratch the management of their economy, which had been closed to the rest of the world for 30 years. At that time the international trade of Hong Kong, which with the New Territories had about the same size as the Outer Hebrides, was greater in value than that of mainland China, the world’s most populous country and the fourth largest in terms of land area. The creation of free-trade Special Economic Zones — mini-Hong Kongs in effect — was Deng Xiaoping’s pragmatic and understandable response.

Deng thereby inaugurated the most far-reaching strategy of unilateral trade liberalisation ever seen, so that China nowadays has low import tariffs by international standards. The value of its total trade (exports and imports of goods combined) is roughly the same as that of the United States at about $4,000 billion, and it is by far the largest exporter of goods in the world. According to data published by the International Monetary Fund, this trade opening — pursued voluntarily and on their own initiative by the Chinese authorities — has been associated with an almost twenty-fold increase in real incomes per head since 1980.

The message of China’s trade liberalisation, and of other trade liberalisations over the last 40 years (notably in Latin America, where Chile and Mexico have had major trade reforms), is of huge relevance to the Brexit debate. Not only is free trade good for you, but also — very logically — self-chosen action to open the home market to imports, to move closer to free trade, is beneficial. The ideal trade regime for all nations is to have no tariff or other barriers on imports whatsoever. To recall the phrase and the sentiment that determined last year’s Conservative leadership contest, free trade means free trade.

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Ewan
May 27th, 2017
11:05 AM
Cuba was subject to decades of blockade and sabotage. North Korea was carpet bombed (read Curtis LeMay's evidence to Congress), repeatedly threatened with annihilation, and subject to decades of blockade and sabotage. To cite either as proof of the flaws in socialist economics is dishonest. Rather proof that the US will inflict any amount of death and destruction on anyone who disobeys. Also, did the UK and US not seek free trade only after protection had established them as the largest manufacturers. Likewise, all the Asian countries that have since caught up. And is it not the case that orthodox development economics does not show free trade to be always of benefit to any and every country, but only in certain circumstances. There is no doubt a strong case for the UK to promote free trade, but the argument should not be encumbered with tenentiousness.

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