Mises Wire

Home | Wire | It's Time for Unilateral Free Trade with Canada, Australia, New Zealand, and the UK

It's Time for Unilateral Free Trade with Canada, Australia, New Zealand, and the UK

  • can

Tags Protectionism and Free Trade

02/04/2021

After years of delay and endless debates over the long-term relationship between the EU and the UK, Brexit is finally done. At least, it’s done for now. The EU and the UK appear to have struck a trade deal and a deal over the general relationship between them.

When it was fully part of the EU, the UK was limited in efforts to unilaterally strike trade deals with countries that weren’t part of the EU. UK trade had to be approved by EU bureaucrats.

But that’s no longer the case, the UK is now more free to look beyond Europe for building up global trade.

As Brexit became more of a reality, the UK began negotiations with Australia, New Zealand, and Canada in hopes of expanding trade with these nations. The UK has now already signed a new trade deal with Canada, which went into effect on January 1 of this year.

The US shouldn’t wait for the UK in forming a bilateral deal. As I suggested in a December 2019 article, the US should embrace unilateral free trade with the UK right now.

But I was too timid in that suggestion. The US should really embrace unilateral free trade with all of these nations—we might call them the “CANZUK” countries—with which the UK is trying to expand trade.1 These countries are free to reciprocate by lowering their own trade barriers with the US at any time, but it's not necessary that they do so for Americans to reap the benefits of free trade. 

Politically speaking, free trade with countries like the UK, Canada, and Australia is low-hanging fruit for advocates of freedom and free markets.

Of course, truly free trade is a good thing with all nations. But its benefits are downright obvious when applied to other nations of similar economic and cultural background, as in the case of the CANZUK countries. In other words, free trade with these nations would be a good place to begin overcoming the usual tired old objections to free trade.

Low Foreign Wages and the “Giant Sucking Sound”

One of the biggest objections of the protectionists is their claim that free trade will lead to a flight of capital.

Presidential candidate Ross Perot once famously claimed that if trade barriers between the US and Mexico were lowered, the US would hear a “giant sucking sound” as US companies relocated to Mexico in order to take advantage of the fact that wages are much lower in Mexico. The idea is that these companies would take advantage of free trade to leave the US and then import the same goods they used to make with American workers in the US.

This isn’t actually a problem in any case. Were a company to do this, it would only lower the costs of living and doing business for US households and businesses. Less expensive goods would be imported into the US, and households could then spend on other goods and services. Businesses would expand and hire more workers, increasing the overall opportunities for employment.

But we need not even debate this issue when it comes to trade with the CANZUK countries. The fact is these countries do not have cheap labor or an especially low cost of doing business. Indeed, these countries often have a more rigorous regulatory environment than the US. There would be no “sucking sound” of any kind.

Rather the benefits of free trade would be immediately obvious. For example, pharmaceuticals and medical products are a big part of UK and Canadian exports. If both tariff and nontariff barriers were eliminated, American pharmaceutical and medical supply companies with higher prices wouldn’t be able to compete with Canadian and British ones. The American companies would have to lower their prices or go out of business. This isn’t a bad thing. It doesn’t take a whole lot of imagination to see how lower-priced pharmaceuticals would be an obvious boon for Americans.

At the same time, there is no reservoir of cheap laborers in Canada or the UK, and American pharmaceutical companies could not simply move to these countries to take advantage of “cheap labor.”

The protectionists, of course, might complain: “But those American pharmaceutical workers will then have to get jobs in other industries!” Fine. After all, their employment in the pharmaceutical industry was premised on the idea that all Americans should be forced to pay more for medicine. This protectionist view only helps illustrate what a twisted worldview the protectionists have. They believe sick people should be subsidizing jobs for pharmaceutical workers. The same is true of other industries, of course. The protectionist view is that a small family-owned home-building business—and its working-class employees—should be forced to pay more for lumber and construction supplies in order to prop up domestic industries. Abolishing trade barriers on, say, Canadian lumber would clearly benefit small businesses and their employees, not to mention their customers.

The Geopolitical Argument for Protectionism

When protectionists fail to be convincing on the economic arguments—which is often—they turn instead to political arguments. It is then possible to say “yes, well, free trade may indeed reduce the real cost of living for ordinary people, but if we have free trade, the Chinese [or some other foreign bogeyman] will use free trade to destroy us!”

The idea here is that if, say, the United States regime allowed free trade in steel, then the domestic steel industry would whither in the face of cheaper Chinese steel. Then, once the US steel industry was dead, the Chinese would cut the US off from all steel.

In essence, the claim here is that economics must be subverted in the name of geopolitical considerations and the US steel industry must be subsidized and protected for military reasons. In terms of the specific China claims, this isn’t a problem. Not even the Pentagon is concerned about it. Nor does the claim hold water in general, as shown here by Robert Murphy.

But when discussing free trade with the CANZUK countries, the issue need not even be addressed.

Obviously, free trade with Canada, or the UK, or the rest of CANZUK is not going to lead to any of these countries cutting off the American regime from essential military supplies. They are not geopolitical threats or competitors. These countries have all been at peace with the United States for more than two hundred years and have been part of a formal military alliance with the US (the UKUSA Agreement) since 1946.2 

In other words, if the US were to become dependent on the CANZUK countries for basic raw materials such as food, iron, or fuel, this would not be a military problem. 

A Free Trade Union

Indeed, any continued US opposition to free trade with these CANZUK nations—and with all similar ones—must be looked upon as nothing more than crude special-interest politics. Some industries don’t want to expand trade with these nations, because a small number of special interests don’t like the idea. They want the larger American population to pay more in terms of basic goods and services for the benefit of a handful of protected industries.

This ongoing special pleading should be regarded with the same contempt with which we would treat an argument that free trade between California and Colorado must be ended in order to “help” domestic Colorado industries. Imagine if a group of Colorado farmers claimed California farmers were “flooding” the Colorado market with cheap agricultural products. “Something must be done!” would be their refrain. “Colorado farmers can’t get a foothold in the market!” Obviously, this “argument” should be laughed out of the room. Everyone knows that food imports from California are a boon to average Coloradans, even if it means Colorado farmers can’t compete.

The same would be true if people in Colorado were able to freely import goods from Canada, the UK, Australia, or New Zealand. Ordinary people in the US would be paying less to cover their basic daily needs. 

But if this were accomplished through unilateral free trade, the protectionists would complain: “But those Australians could still slap trade barriers on Colorado goods!” The answer to this is “so what?” It would be morally reprehensible to hold Colorado consumers hostage and force them to pay higher prices for necessary goods until the Australians (or whoever) agree to lower tariffs for Colorado goods. There’s no guarantee that Australians would even want to buy anything Colorado has to offer. After all, Colorado consumers continue to benefit from California-Colorado trade even if Californians purchase very little from Colorado (which appears to be the case). The benefits for average Coloradans would be immediate and obvious even in case of unilateral free trade. 

The time has come for US protectionists to stop pretending that some benefit is gained from continued "protection" from imports from the rest of the world. A good place to start would be in the Anglosphere, where no plausible claim can be made for geopolitical danger or a flight of capital. This could be done tomorrow, but, unfortunately, protectionists will continue to mobilize their armies of lobbyists against it. 

  • 1. I'm borrowing the term "CANZUK" from an existing movement to forge a loose confederation of Canada, Australia, New Zealand, and the UK. Supporters (which include the head of the Conservative Party in Canada) propose varying degrees of unity among the potential member states for purposes of free movement of residents, free trade, and military alliances. None of these supporters, however, have included the US in these plans. 
  • 2. In the case of Canada, Australia, and New Zealand, these countries have always been at peace with the US, since these countries did not have foreign policy independent of the UK until the twentieth century. 
Author:

Contact Ryan McMaken

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power&Market, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado and was a housing economist for the State of Colorado. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
When commenting, please post a concise, civil, and informative comment. Full comment policy here
Shield icon wire