Post-Brexit Britain Must Turn Its Back on Protectionism
Comparative advantage is a force that drives worldwide progress, prevents stagnation and allows the poorest nations to develop.
Alexander C. R. Hammond —
The First Minister of Wales, Carwyn Jones, recently denounced the idea of a post-Brexit Britain entering into trade deals with poorer nations. Jones’s main objection lay in the premise that free trade with less developed countries would “undermine Wales’ farming sector.” Jones’s remarks came after meeting International Trade Secretary Liam Fox. Sensibly, Dr. Fox has not been dettered by this warning and remains focused on seeking new post-Brexit trade deals.
Shortly after Jones’s comments Chatham House declared that post-Brexit, a market oriented approach with no farming subsidies, like that seen in New Zealand, would ultimately lower food prices and increase British productivity. Jones is concerned about Welsh farmers being unable to compete with cheaper international produce. To overcome this “problem”, Jones favours either taking taxpayer money to give to farmers in the form of subsidies, or tariffs to tax international products. The former would mean the government extracting more from UK taxpayers; the latter would mean selling foreign produce at a higher price to British consumers.
As a member of the EU, the UK has become accustomed to artificially high food prices. Prior to entry into the European Economic Community in 1973 (before Britain had to accept high tariffs on non-EU imports) food prices were 40 per cent lower. Even the OECD has conceded that the EU’s Common Agriculture Policy still adds 17 per cent to our food bills. Bear in mind that this is the same organisation that recently declared, with the arrogance that has become characteristic of such supranational organisations, that calling a second referendum to reverse Brexit would be beneficial to the UK.
Imposition of tariffs hurts the poorest in society, who spend a larger proportion of their income on food. To quote Daniel Hannan’s new Institute For Free Trade, in regards to industries that have been artificially propped up by government, “we must not shy away from the fact that some people lose out from free trade. But it is vitally important to clarify the scale on which this occurs. Many more people lose out from protectionist policies. The overall effect of an open trading environment on the economy is undoubtedly positive.”
In sharp contrast, Jones laid out his vision of post-Brexit Britain as follows: “What we can’t do is have free-trade deals that deliver cheaper goods in Britain but end up with us exporting jobs to somewhere else.” Like many protectionists who have come before him, Jones ignores both jobs lost to protectionism (more expensive inputs lead to more expensive outputs) and the very concept that for the last two hundred years has made his own nation prosper: comparative advantage.
The concept of comparative advantage turns 200 this year. Developed by David Ricardo in 1817 it states:
If a country is relatively better at making wine than wool, it makes sense to put more resources into wine, and to export some of the wine to pay for imports of wool. This is even true if that country is the world’s best wool producer, since the country will have more of both wool and wine than it would have without trade. A country does not have to be best at anything to gain from trade. Because it is relative advantage that matters, it is meaningless to say a country has a comparative advantage in nothing.
If, in the 19th century, the UK had followed the advice of the likes of Jones, rather than David Ricardo, we would all still be stuck with back breaking labour in the fields. Importing cheaper foodstuff from abroad allowed us to work in factories at a significantly higher wage, while our agricultural jobs were exported internationally. If Jones’s ideas were applied to the UK in the 20th century, many of us would all still be working in the factories as opposed to having more comfortable jobs in service sector.
Later in his speech, Jones said “Fine, have a free trade agreement, but it’s got to be with a country which is pretty much level pegging with you in terms of income.” This is an absurd suggestion. There’s no doubt that developed countries trading freely with one another is beneficial. But excluding poorer nations from these agreements both hurts the UK by denying Jones’s constituents cheaper goods, and denies the poorest nations access to the markets in which they can grow prosperous.
If we in the developed world were never permitted to buy cheap products from China, not only would we be missing out on a plethora of Chinese goods, but the Chinese extreme poverty rate (less than $1.90 per person per day in 2011 at PPP) would not have fallen from 66.6 percent in 1981 to under 1.9 percent today. Comparative advantage, when allowed to work its magic, is a force that drives worldwide progress, prevents stagnation and allows the poorest nations to develop.
Whether it be wartime blockades, or sanctions imposed against a rogue state, limiting a nation’s ability to freely trade with the outside world makes them worse off. As my Cato Institute colleague Ryan Bourne says, voluntarily imposing tariffs is like blockading your own ports during wartime. The English economist Joan Robinson paraphrased the great Frédéric Bastiat when she said, “Even if your trading partner dumps rocks into his harbour to obstruct arriving cargo ships, you do not make yourself better off by dumping rocks into your own harbour.”
Comments from the First Minister of Wales show misunderstanding of basic concepts of economics and ignorance of practices that made Great Britain great. Following the U.K.’s departure from the E.U., we should slash the protectionist practices we’re currently obliged to follow and in doing so we’ll help both the poorest in our society and in the worldwide community. Let’s stick to the free-trade ideas that were at the heart of Brexit, whilst being cautious about dumping the rocks of protectionism around our own white cliffs.
“Many people have a memory of some ancient, avocado-green washing machine or refrigerator chugging along for decades at their grandparents’ house. But even then, decade-spanning durability was uncommon.
Although I couldn’t find a ton of hard data on appliance lifespan over the past 40 years, nearly everyone I spoke with — service technicians, designers, engineers, trade-organization representatives, salespeople — said that kind of longevity was always the outlier, not the norm.
‘Everybody talks about the Maytag washing machine that lasts 50 years,’ said Daniel Conrad, a former product engineer at Whirlpool Corporation who is now the director of design quality, reliability, and testing for a commercial-refrigeration company. ‘No one talks about the other 4.5 million that didn’t last that long.'”
Summary: The economist Joseph Schumpeter explained capitalism’s power to transform luxuries for the elite into affordable goods for the masses. From silk stockings once reserved for queens to synthetic diamonds now within reach of everyday consumers, capitalist innovation drives this democratization of consumption.
In his 1942 book Capitalism, Socialism and Democracy, the Austrian economist Joseph Schumpeter explained one of the most important characteristics of free market economies. He wrote:
It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls.
Schumpeter’s anecdote about Queen Elizabeth and silk stockings illustrates capitalism’s remarkable ability to democratize consumption.
Initially, silk stockings symbolized privilege reserved only for royalty and elites. Yet capitalism’s true achievement, Schumpeter argued, is not merely supplying luxury to the rich but making such goods affordable for ordinary people. Entrepreneurial innovation, mass production, competition, and technological advances – driven by profit incentives – bring previously unattainable products within everyone’s reach.
This phenomenon elevates the living standards of the less fortunate by breaking down class barriers and spreading prosperity more broadly. Capitalism’s transformative force, according to Schumpeter, lies in continually converting luxuries into everyday essentials, thereby enhancing human well-being across social strata.
The diamond industry today exemplifies Schumpeter’s insight perfectly. Historically, diamonds represented wealth and exclusivity, accessible primarily to the affluent. However, technological advancements, particularly synthetic diamond production via High Pressure High Temperature (HPHT) methods and Chemical Vapor Deposition (CVD) technology, have dramatically changed this dynamic.
Chemical Vapor Deposition (CVD), for example, is a technique for creating synthetic diamonds by depositing carbon atoms from a carbon-rich gas onto a substrate. In this method, a diamond seed crystal is placed in a vacuum chamber filled with gases such as methane and hydrogen. When heated to very high temperatures, these gases break down, and carbon atoms accumulate layer-by-layer on the seed crystal, slowly forming a diamond. This process enables precise control over diamond purity, size, and quality, making it highly efficient and cost-effective compared to traditional diamond mining methods.
Not only have synthetic diamonds become more widely affordable, but they have also placed a downward pressure on natural diamond prices. As a recent article in The Guardian explained:
Natural diamonds cost 26% less in shops than two years ago, a drop during a time of high inflation that would be extraordinary were it not dwarfed by the poor fortune of their identical twins, lab-grown diamonds, which are now 74% cheaper than in 2020.
Furthermore, synthetic diamonds may appeal to modern consumers by offering ethical and environmental advantages over mined diamonds. Instead of sourcing diamonds from some of the world’s bloodiest conflict zones marked by human rights abuses and environments destroyed by primitive forms of mining, today’s diamonds increasingly come from the lab.
Much like silk stockings transitioned from royal exclusivity to widespread accessibility, diamonds today are undergoing a similar evolution. Synthetic diamonds eliminate historical barriers of price, scarcity, and exclusivity, transforming diamonds from symbols of privilege into everyday commodities.
Time Pricing Mark Perry’s Latest “Chart of the Century”
Always compare prices to hourly wages to understand the true change in living standards.
Gale L. Pooley —
Professor Mark Perry recently posted his updated “Chart of the Century,” featuring price and wage data from the Bureau of Labor Statistics (BLS). The chart tracks 14 items over the 24 years from January 2000 to December 2024 and includes both the overall inflation rate and changes in average hourly wages.
To examine the data from a different perspective, we calculated the change in time prices of these 14 items relative to the change in the average hourly wage. We then determined the abundance multiplier—a value that indicates how many units of an item you could buy in 2024 for the amount of work time it took to buy one unit in 2000. If there were no change, the abundance multiplier would equal one. A value below one indicates decreasing abundance, while a value above one reflects increasing abundance. We also calculated the percentage change in abundance for each item.
This analysis illustrates that things can become more expensive in dollar terms while simultaneously becoming more affordable in time prices. For instance, while the general Consumer Price Index (CPI) rose by 87.3 percent, average hourly wages increased by 123.3 percent. As a result, time prices fell by 16.1 percent. For the time it took to purchase one CPI basket in January 2000, a consumer could buy 1.192 baskets in December 2024—an abundance increase of 19.2 percent.
Notably, categories such as housing, food and beverages, new cars, household furnishings, and clothing all increased in money prices. However, after adjusting for rising wages, they became more affordable in time-price terms. Although 10 of the 14 items rose in nominal prices over the 24 years, only five had a higher time price when accounting for the 123.3 percent increase in hourly wages.
We also created a chart showing the percentage change in abundance for the general CPI and each of the 14 tracked items:
Find more of Gale’s work at his Substack, Gale Winds.
