This week the UK will start negotiating its future relationship with the European Union. The government is trying to convince the EU it is serious about its red lines and prepared to walk away from negotiations if the UK’s “regulatory freedom” is not accepted – a no-deal scenario that would result in tariffs between the EU and the UK. Yet at the same time the government is telling the world that the country is “re-emerging after decades of hibernation as a campaigner for global free trade”, as Boris Johnson put it a few weeks ago.
The EU is understandably confused. It’s odd to claim to be campaigning for free trade at the exact moment you are creating new barriers to trade. If we were so committed to frictionless trade, we wouldn’t have left the EU; and having decided to leave, we would have sought to maintain a close economic relationship with the EU, like that of Norway, rather than seek a basic trade deal like Canada’s.
As well as creating confusion, the narrative also absurdly idealises free trade. Johnson invoked Richard Cobden and the idea that free trade is “God’s diplomacy – the only certain way of uniting people in the bonds of peace since the more freely goods cross borders the less likely it is that troops will ever cross borders”. But the idea that free trade prevents war was shattered by the outbreak of the First World War, which brought to an end the first era of globalisation.
We also know that the domestic effects of free trade are more complex and problematic than Johnson suggested. Economic liberalisation increases efficiency by removing friction but also creates disruption and has huge distributional consequences – that is, it creates winners and losers. In a democracy, these consequences need to be mitigated.
The world is not the same as in Cobden’s time. Tariffs are at a historically low level – and many non-tariff barriers have also been removed. Most of the possible gains from trade liberalisation have been realised. Johnson talked about the dangers of a new wave of protectionism. But as the economist Dani Rodrik argues, the big problem in the global economy is no longer a lack of openness, it is a lack of democratic legitimacy.
The UK should abandon this confusing narrative and own the way it is creating new barriers to trade – and do a better job of explaining the legitimate reasons for doing so. We should be talking about the need to balance openness and economic efficiency with democracy and a sense of control, which is ultimately what Brexit was all about. Instead of claiming to be a “catalyst for free trade”, as Johnson put it, we should be talking about how the UK is trying to recalibrate globalisation and, in doing so, make it sustainable.
In the three decades after the end of the cold war, globalisation got out of control as barriers to the movement of capital and goods were progressively removed – what Rodrik called “hyper-globalisation” to distinguish it from the earlier, more moderate phase of globalisation. This kind of deep integration necessitated the development of a system of rules that have constrained the ability of states to pursue the economic policy, particularly industrial policy, they want, and undermined democracy.
Hyper-globalisation created a sense that “the nation state has fundamentally lost control of its destiny, surrendering to anonymous global forces”, as the economist Barry Eichengreen said. Throughout the west, we are all struggling with the same dilemma – how to reconcile openness and deep integration on the one hand, and democracy, sovereignty and a sense of control on the other.
Within the EU, however, economic integration and the abolition of barriers to the movement of capital and goods went further than in the rest of the world – and the evolution of the principle of freedom of movement after the Maastricht treaty meant that barriers to the internal movement of people were also taken away as the EU was enlarged. What happened within the EU might be thought of as “hyper-regionalisation” – an extreme example, in a regional context, of a global trend.
EU member states have lost control to an even greater extent than other nation states – albeit to anonymous regional rather than global forces – and this loss of control was felt intensely within the EU. It is therefore logical that this led to an increase in Euroscepticism. Whereas the left wants to restore some barriers to the movement of capital and goods, the right wants to restore barriers to the movement of people.
However, having left the EU, the UK is uniquely well placed to find a new equilibrium. The UK has an ideological commitment to free trade that goes back to the abolition of the Corn Laws in the 1840s – which Johnson’s speech expressed. It is difficult to imagine the UK becoming protectionist in any meaningful sense, but at the same time, it has a well-developed sense of national and popular sovereignty, and the sense that the two go together – which is why it was so sensitive to the erosion of them through the EU. This means that Britain is unlikely to go to one extreme or the other.
In other words, the UK may be the ideal country to find a new balance between openness and integration on the one hand, and a sense of control on the other. If we can find this balance – if we can make Brexit work – the UK could be a model for a wider recalibration of sustainable globalisation. That, rather than fetishising free trade, is the real contribution the UK can make.
• Hans Kundnani is a senior research fellow at Chatham House