Recently, the United Kingdom signed two “free trade deals” with India and the United States. Adam Smith and David Ricardo would justifiably take issue with the label of free trade because these deals have not established what the term refers to in the classical liberal framework. Instead, these deals have lowered tariffs significantly on certain goods and services but not to zero barriers. The Labour Party is parading these agreements as a huge win, a victory amidst all the negativity. But in doing so, they expose their inconsistency on economic matters.
The trade deals cut tariffs on goods like steel, beef, and cars so the cost of selling goods in American and Indian markets is now much lower. This is a huge win for the free market, specifically the division of labor which drives the engines of prosperity. Adam Smith commented in the Wealth of Nations that “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy…What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” Smith is commenting on a fundamental element of the market that drives wealth creation.
Imagine a community, “Autarkia,” that produces everything itself. Autarkia is entirely self-sustaining. The imagination need not run too hard; these primitive agricultural communities have existed for centuries before mankind made giant leaps of technological progress. Subsequently, Autarkia learns of a second community: Marketium. Autarkia discovers that Marketium can farm huge quantities of high-quality corn as they have unexplainably skilled farmers. Likewise, Marketium finds out that Autarkia has been able to breed much more healthy cows with skilled breeders. Given this discovery, it is in the best interests of the Autarkian residents to trade their cows for Marketium’s money and Marketium to trade their corn for Autarkian’s money. This creates specialization whereby Autarkia can switch the roles of their corn farmers, and Marketium’s cow breeders, to other, more value creating ends like building better shelter or providing cleaner drinking water. Both communities are left better off from these exchanges since they both receive higher quality goods in larger quantities whilst freeing up others to specialize in areas that will further the standard of living of the community.
Smith was accurate: it would be folly for a father of a family to deliberately hold back his family’s prosperity by leaving out the option to obtain a good or service cheaper than what he could do himself.
These trade deals have removed heavy barriers to international trade that will allow an incredible discovery process to be set into action. It is not a guarantee that these trade deals will cause a shift of resources into different sectors as consumers realize that, for example, Indian beef is better and cheaper than British beef. The point of removing barriers to trade is so individuals can discover if the possibility exists for higher quality or cheaper goods. Trade barriers have done nothing but impede this value creation system, thus guaranteeing a lower standard of living than otherwise would exist; the state is literally forcing a ceiling on the potential of humanity.
Prime Minister Keir Starmer said of the India trade deal, “Reducing trade barriers with economies around the world is part of our Plan for Change to deliver a stronger and more secure economy here at home.” Part of economic analysis is considering the unseen, rather than just the seen. The government has admitted that more open markets through lower tariffs and less stringent regulation will create growth. However, astute observers will notice that opening markets is not the modus operandi of this Labour government. Starmer has hiked taxes to almost historic highs, continues to pursue economic suicide through Net Zero, and wishes to confine the housing market to a strait jacket. This is not a government that is pursuing free trade for free market reasons.
That leaves two reasons for why the government has taken this action. Firstly, the Labour government has taken an immense hit to its popularity since it was elected—and it was not exactly popular in the first place. When this happens, politicians scramble to make the ground back and principles become negotiable. The government has been flailing, so it needs to take back control of the narrative and a historic trade deal is a great way of taking the reins.
The second option is that the actors that make up the Labour government are attempting to have their cake and eat it too. The prime minister and his lackies are correct that these trade deals open the market to much more freedom. An absorption of a greater network of market prices, hindered less by the heavy hand of government, directs more of society’s scarce resources to their valued ends. For example, the commentary around the India deal is that the British tech industry is optimistic about the prospects for their sector. If these entrepreneurs are accurate in their perception, then thousands of Indian consumers will gain immense value and wealth from British tech products. On the other side of the transaction, the British tech industry will experience growth which fuels employment and wage rises, leading to wealth and prosperity at home.
While this is all objective, the Labour government does a total 180-degree turn when applying that logic to domestic policy. Labour seeks to create huge amounts of wealth while maintaining and growing a state which only serves to siphon the productivity of the British nation into inherently unproductive ends. The economist Ludwig von Mises commented on the foolishness of attempting this “third way” between the market and socialism through Interventionism that still rings true:
“It is inherently unstable because it generates consequences that are contrary to the intentions of its authors. It is not capable of bringing about the results sought by its supporters.”
Labour should be given a pat on the back for achieving these huge trade deals that will allow the British people to become more productive, create wealth and value whilst reaping the rewards. However, leopards rarely change their spots and these opportunists are unlikely to make the fundamental changes that the United Kingdom needs to pull itself out of over a decade of stagnation.
