Tim Worstall

The EU on Trade Agreements.

How odd, it’s the European Commission that’s on the right side in this economic argument. The UK seems to have swallowed the Christian Aid/ Oxfam line that the poor countries should not open up their markets to imports. The EU, in the process of actually negotiating the agreements (trade is an EU sole competence), wants them to open up their markets. Much as I hate to credit the EU with being correct on any subject whatsoever, they are in the right here.

Simple and basic trade theory shows that imports are the good thing, exports being simply the price one must pay to get them. Even of everyone else on the planet was not a free trader, an economy would still benefit by being so. So it is in the poor countries’ own interest to dismantle their tarrif barriers (actually, sharpening up their bureaucratic logistics would have a similar effect). Just somewhat surprising that the EU is pushing the point.

We’ll still have to wait a long time before they apply the same logic to our own economies, of course, as Mandelson’s desire to limit Chinese textile imports shows.

In

11 responses

  1. Jim Avatar
    Jim

    “Simple and basic trade theory shows …”
    Well, this simple and basic theory is too simple and too basic. It ignores the fact that producers in poor countries are likely to be more specialised in production than they are in consumption, which means that for many any benefits could be far out-weighed by the costs of liberalisation. It also ignores the fact that unemployment tends to be higher in poor countries and social safety nets much lower, and lastly that people tend to be much closer to the subsistence line, so that losing a job due to liberalisation can be catastrophic rather than merely inconvenient as it is in rich countries. Given these factors, it’s perfectly factor that a particular trade barrier is rational for a self-interested poor country, especially if it’s even moderately concerned about plunging already poor people into destitution.

    Reply
  2. Jim Avatar
    Jim

    Hmm, when I wrote “perfectly factor” I meant “perfectly possible”. Must start actually checking what I write before hitting ‘Post’.
    Tim adds: Could we add thinking to that list as well? Your defense of tarrifs is a defense of producer interests when what we should be concerned about is defense of consumer interests.

    Reply
  3. Jim Avatar
    Jim

    “what we should be concerned about is defense of consumer interests”
    No, we should be concerned about both. Consumers are usually producers too, aren’t they? That particularly applies to the poor in poor countries. And, as I said, they tend to be more specialised in what they produce than in what they produce. A good example being farmers who produce only bananas but consume a variety of food and other goods. The point being that if the banana industry in their country is devestated by sudden liberalisation, their incomes plunge and it doesn’t really matter to them that they can suddenly buy cheap bananas.
    This is just repeating what I said the first time – if you didn’t understand it, maybe you need to think about it a bit more yourself.
    Tim adds: Slightly odd view. Poor economies are characterised by less specialization than rich ones. One of the things that makes them poor actually. Peasant farming is about as unspecialized as you can get. Your argument appears to be that since people are so highly specialized, then the changes that free trade brings means that they should be protected from such changes. Thus protection should be higher in economies marked by greater specialization. That would be us, for example. The poor world doesn’t support many VAT accountants or scandium traders, but the rich world does.

    Reply
  4. Monjo Avatar
    Monjo

    Then they should unspecialise. Anyway I doubt Ghana will import coffee or chocolate beans from the EU, but they can import equipment to process coffee and chocolate from the EU and then export this – so creating new production opportunities.
    Plus you are forgetting there were no social security programmes in place when Britain industrialised.. or when the Australian and American pioneers went off to make their fortunes. Yet the jobs and the people migrated and adapted.

    Reply
  5. Jim Avatar
    Jim

    “Then they should unspecialise.”
    Easier said than done.
    “they can import equipment to process coffee and chocolate from the EU and then export this – so creating new production opportunities.”
    Again, much easier said than done. Do you think they haven’t thought of this or something? Coffee farmers in Ghana don’t exactly have piles of money sitting around waiting to be spent on new equipment. In many African countries the state used to subsidise machinery and other inputs for poor farmers, but then were told to stop as part of those wonderful austerity programmes imposed by the IMF.
    “Plus you are forgetting there were no social security programmes in place when Britain industrialised.. or when the Australian and American pioneers went off to make their fortunes. Yet the jobs and the people migrated and adapted.”
    And guess what? They were heavily protected by high trade barriers.

    Reply
  6. Rob Read Avatar
    Rob Read

    “And guess what? They were heavily protected by high trade barriers.”
    Yes another tax, making us all poorer.
    Everyone is a consumer, not everyone is a producer.
    Tariffs, are a negative sum transfer from consumers to producers.
    The country gets poorer.
    Export subsidies are when a producer makes taxpayers poorer to subsidise the lifestyles of people in another country.

    Reply
  7. Jim Avatar
    Jim

    “Poor economies are characterised by less specialization than rich ones.”
    No, I mean specialization in the sense of producing one or few products. Specialized as opposed to diversified. And in this sense, poor countries are more specialized than rich countries.

    Reply
  8. dearieme Avatar
    dearieme

    “rational for a self-interested poor country”
    But it isn’t a country that makes a decision, it’s a person or persons. The key question is ‘what is their self-interest?’
    Tim adds: That, unfortunately, does not fit in with the way Jim thinks. The state/nation is the decisive unit for Jim.

    Reply
  9. Jim Avatar
    Jim

    “But it isn’t a country that makes a decision, it’s a person or persons. The key question is ‘what is their self-interest?’”
    And if a country’s government is concerned about the interests of it’s poorest and most vulnerable people, it’s going to have to take decisions that are in their interests but not in their power. It’s generally the poorest and most vulnerable people that are keenest for their governments to have this kind of decision-making power, too. A pretty basic concept, I would have thought.
    “Tim adds: That, unfortunately, does not fit in with the way Jim thinks. The state/nation is the decisive unit for Jim.”
    But not basic enough for Tim, it would seem. I do enjoy your desperate attempts to force arguments you don’t understand into a shape you do.

    Reply
  10. dearieme Avatar
    dearieme

    “And if a country’s government is concerned about the interests of it’s poorest and most vulnerable people…”; but if it were, and if it weren’t handicapped by some loopy ideology, then it’s not too likely that the country will stay poor for long whatever aid policy is. Of course a decent trade policy,including the scrapping of agricultural subsidies, by the EU, US and Japan could help many poor countries enormously. Fat chance.

    Reply
  11. Jim Avatar
    Jim

    You’re ascribing a lot of power to governments there – are you really saying that any government in a poor country can simply decide to stop being poor, and that’s all there is to it?

    Reply

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