This paper endeavors to describe the principles that should be reflected—as well as the substantive issues, elements, and provisions that should be included—in what free traders would consider the ideal free trade agreement between the United States and the United Kingdom. Immediately, conflict exists.
Real free traders may consider the notion of an ideal free trade agreement oxymoronic. After all, real free traders are most concerned about eliminating domestic barriers to trade, whereas trade agreement negotiators consider those same barriers to be assets. Free traders seek the removal of domestic barriers, regardless of whether other governments promise to do the same; we understand that the primary benefits of trade are the imports we obtain, not the exports we give up. The benefits of trade are measured by the value of imports that can be purchased for a given unit of exports—the more, the better. The benefits of unimpeded access to the wares produced and services provided by people in other countries include greater variety, lower prices, more competition, better quality, and the innovation that competition inspires.
Free trade is a condition characterized by the absence of trade barriers. Establishing the most important conditions for free trade—the elimination of domestic barriers—requires no formal agreements between or among governments. It is misguided to believe that the economic freedom of people living in one sovereign nation should depend on the consent of a foreign government. But the benefits that accrue to producers, workers, consumers, and taxpayers when their own government eliminates or reduces its own trade barriers—regardless of whether a foreign government agrees to do the same for its citizens—are ample and well-documented.
The stories behind the compelling 20th-century economic turnarounds in places such as Hong Kong and Singapore, Australia and New Zealand, Chile and Mexico, and China and India have in common the commitments of those governments to deep and broad unilateral reforms. Those examples and others notwithstanding, trade liberalization throughout history—and especially over the past 85 years—has followed a model best described as “mercantilist reciprocity.” Although economists tend to appreciate that trade enables us to specialize, and that by specializing we can produce and thus consume more, trade policy is less informed by economics than it is shaped by matters of political economy.
The primary architecture that enabled the world to achieve massive reductions in tariffs and other trade barriers since the end of World War II was built around this idea: because of the political costs to exposing one’s industries to foreign competition, negotiators agreeing to that outcome would have to receive compensation in the form of better foreign market access for their exporters to balance the domestic scorecard. Although it is incongruous— even intellectually dishonest—to conduct trade negotiations premised on the idea that one’s barriers are assets to spend sparingly and only if exchanged for export market access, the fact is that between 1947 and 1994 average global tariffs fell from 40 percent to 4 percent. At the risk of spinning Adam Smith in his grave, mercantilist reciprocity has delivered a healthy dose of freer trade.