Nick Bye: The local history link to Trump's tariffs

How do you make sense of what is going on in this mad world & how can one man cause so much upset?

The danger of sharing a few thoughts on the current economic turbulence is my words will be out of date as soon as I push the "send" button, never mind by the time they appear in print.

There's a little bit of local history attached to all this talk of tariffs of course. The third round of talks following the post war General Agreement on Tariffs & Trades was held in Torquay from September 1950 & continued into 1951.

Hansard, the record of what is said in Parliament, records Lord Balfour of Inchrye being rather dismissive "the general assessment, according to press reports, of the Torquay Conference, is that it has been a failure, except perhaps from the point of view of the landladies & shopkeepers of Torquay, who I understand have enjoyed an unexpected winter season".

History I believe should be a little kinder as this Great Conference on international trade paved the way for the huge increase in prosperity through the 1950s & 1960s as international trade grew, economies expanded & living standards rose at an unprecedented rate. All this in huge contrast with the isolationist approach of many countries in the inter war period which prolonged the Great Depression.

It seems extraordinary to me to have to make the case for free trade when there has been so much evidence through the last century of the benefits of international trade & the pitfalls of putting obstacles in place whether punitive tariffs or basic restrictions on imports.

Indeed you can go back further & argue the repeal of the Corn Laws in 1846 was a tremendous boost to our early Industrial Revolution allowing cheap food imports & freeing up much of the previously agricultural workforce to move into our rapidly growing cities & factories. Free trade allows countries to make the most of their comparative advantages.

So in the mid nineteenth century we were top dog in terms of industry & manufacturing whilst other countries could produce food more efficiently. So international trade enabled us to profit from the export of manufactured goods whilst enjoying the benefits of cheap imported foods. Our economy is now based on services, especially financial services so we continue to prosper.

Tariffs are generally put in place to preserve a particular interest or for largely nostalgic reasons. I tried & failed to explain the merits of free trade to a NOT TERRIBLY BRIGHT (in my opinion) Conservative MP at a lively discussion in Totnes last year.

His view, like President Trump, is we should be importing less from abroad & China in particular & manufacture more at home. He seemed to think restrictions should be put in place on some imports. I tried to explain that unless UK workers accepted the same wages as in China & our factories were as efficient then consumers would have to pay substantially more for similar goods, which wouldn't go down terribly well.

President Trump & the American people are now about to find this out the hard way. Far from "Making America Great Again" the first effect will be to make America expensive again as tariffs are imposed on imported goods. If imports are replaced by domestic production then prices will also reflect higher American labour costs. Trade barriers tend to stifle innovation as well as competition so protected markets over time tend to lead to inferior products. Just remember all those Trabants & Soviet era cars.

The danger of imposing tariffs or import restrictions is other countries will do exactly the same thing: 

"You won't buy from us so we won't buy from you!" So China is now introducing retaliatory tariffs & we have the world's two largest economies slugging it out which is in no one's interest.

Hopefully cool heads will prevail & the UK can maintain a foot in all camps as progress is made with a US trade deal & we rebuild relations with our former EU partners. We are still one of the world's largest economies but our success depends upon trade, earning money from abroad by doing what we're best at (& from investments) whilst importing all the things (nearly) we like to buy.

In fairness we do still have some success in manufacturing, especially luxury goods & niche products. I also accept we need to be self sufficient in some areas such as defence procurement for obvious reasons. Indeed our defence sector is a definite area of strength. But we are now principally a knowledge based service sector economy, leading on innovation but leaving humdrum manufacturing to others.

Perhaps it's time for our Prime Minister to call another Great Conference on Trade replicating the success of what happened in Torquay all those years ago.