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Home | Blog | Forget Foreign Aid — Adopt Free Trade Instead

Forget Foreign Aid — Adopt Free Trade Instead

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Tags Taxes and SpendingWar and Foreign Policy

03/31/2017

In his recent Guardian article, David Cameron, the former UK prime minister and newly appointed Chair of the Commission on State Fragility, Growth and Development, argued that it is right for the United Kingdom to continue to give aid to developing and unstable countries. Mr. Cameron argued that it is the responsibility of the UK government to give aid supporting developing countries as not only is it the moral thing to do, but it is also in the interests of the UK.

Following on from Mr. Cameron's article, I would like to argue for a better way in which the UK can help less developed countries and also advance its own interests: free trade.

As the UK prepares to leave the European Union, it gives the government an unprecedented opportunity to examine its trade policy and to forge new free-trade-based relationships with the EU and with the rest of the world. Free trade has brought economic prosperity and lifted millions of people out of poverty in a way which is unmatched in human history. Free trade not only benefits all countries involved economically but also promotes peace and goodwill between those countries. Therefore, the UK should aim to pursue free trade with countries all over the world.

However, the newly formed Department for International Trade might face opposition — especially from developing or fragile states — in the form of protectionism. If such a situation were to arise, the UK should pursue a policy of unilateral free trade with these less economically developed countries. It should do so for two main reasons.

The first reason is that it is the morally right thing to do. As mentioned above, free trade brings economic prosperity to all parties involved. As a result, if the UK removed tariffs on its imports from developing countries in regions such as Africa, this would be incredibly beneficial for some of the poorest people on the planet.

To illustrate this point, let's think about coffee and the EU's protectionist approach. A 7.5 percent tariff is imposed on roasted coffee from Africa in EU countries. However, non-decaffeinated green coffee attracts no such tariffs.1 Such protectionist policies can keep countries trapped in a situation where they can only realistically export raw materials; it prevents them from adding value to their produce.

Pursuing a policy of unilateral free trade with the developing world will open up new markets in the UK for producers from these countries. Rather than simply selling raw materials, they will be able to add value to their produce and create ever more specialized and sophisticated products. This will create more jobs and increase prosperity in these countries. Embarking upon unilateral free trade will help to lift some of the world's poorest people out of poverty and will help to bring prosperity and stability to developing and fragile states. It is the morally right thing to do.

The second reason why the UK should consider unilateral free trade with less economically developed countries is that it would benefit the UK. Removing tariffs on imports will encourage producers in these countries to export more of their products to the UK. This will result in cheaper goods for consumers and businesses. As a result, people in the UK will be wealthier. They will have more money to save and to spend on other products. Lower prices on imports — and the increase in consumer spending which would result — would also be very good news for UK businesses. It would allow them to hire more staff, thus reducing unemployment. It would also allow them to spend more money on research and innovation meaning that they create new products which people in the UK — and the rest of the world — want to buy.

Furthermore, although immigration and the UK's generosity should be viewed positively, they are politically controversial. Increased economic prosperity and security in developing countries would reduce immigration-based pressure on the UK. As a result, unilateral free trade with less economically developed countries would reduce the UK's international aid budget and help to reduce the pressure on public services.

Unilateral free trade with the developing world would bring prosperity and security to some of the poorest people around the world and would also be beneficial to the UK. The International Trade Secretary Dr Liam Fox, should seriously consider adopting such a policy.

  • 1. See "How the  EU starves Africa into submission" by Calestous Juma, at the Belfer Center for Science and International Affairs at Harvard's Kennedy School. (October 26, 2015) Juma writes: "The concern is not that Germany benefits from processing coffee. It is that Africa is punished by EU tariff barriers for doing so. Non-decaffeinated green coffee is exempt from the charges. However, a 7.5 per cent charge is imposed on roasted coffee. As a result, the bulk of Africa’s export to the EU is unroasted green coffee...The charge on cocoa is even more debilitating. It is reported that the 'EU charges (a tariff) of 30 per cent for processed cocoa products like chocolate bars or cocoa powder, and 60 per cent for some other refined products containing cocoa.'"

Ben has degrees in law and economics. He has previously worked in finance and for think tanks and is currently working as a researcher at the University of Oxford.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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