Trade talks fail

Responding to news of the collapse of the latest round of talks on free trade, European Trade Commissioner Peter Mandelson said: “We have missed the chance to seal the first global pact of a reshaped world order. We would all have been winners from a Doha deal. Without one, we all lose.”

But why does there have to be a “deal” at all? The discussions that have been going on are like an argument between two people, where one offers to stop kicking himself in the teeth if the other will agree to stop shooting himself in the foot. If either party refrains from the self-harm then they will be better off, regardless of what the other does.

At the root of the reciprocity argument lie mistaken notions of the benefits of protectionism. Agricultural protection in first world countries are a cost on taxpayers and consumers in those countries, the latter being deprived of the opportunity to purchase food at world prices. Most people there would be better off if their governments dismantled the protection. There would be an overall gain even if this were done unilaterally. The only beneficiaries of the present policy are owners of agricultural land in the first world countries, to the very substantial cost of taxpayers and consumers.

There are knock-on effect s in third-world countries. One is that agricultural surpluses get exported at below cost. Although it is a net economic loss overall, it is actually a gain to most people in those countries at the expense of agricultural landowners there. But the effect is to shift the economic margin and make some, and possibly a lot, of agricultural production uneconomic, pushing farmers into idleness. Another knock-on effect is to reduce the opportunity for third world countries to expect food products where these might compete with first-world farm produce. The third world countries then end up short of the currency of first world countries, which harms their ability to purchase first world industrial products and services.

The whole thing is a disaster and any unilateral abolition of protection would improve the situation of the country concerned. However, any country that abolished protection would have to change its tax system so that land was freely available to anyone who wanted to use it, subject to payment of economic rent as public revenue – in other words, the country would need to introduce LVT at the same time as it dismantled the trade barrier it had erected round itself, to maximise the economic opportunities available to its people.

The argument against protectionism ought to be self-evident. Trade barriers have the same damaging effect on trade as physical obstacles to the free movement of goods and services. If protection against imports was a good thing, then countries where the ports were most obstructed by dangerous reefs and rocks would be the most prosperous.