Time to get “Wealth of Nations” off the shelf

As the outlines of the Brexit settlement emerge, it is important to study Adam Smith and break out of mercantilist habits of thought; to keep the focus on IMPORTS as well as EXPORTS. A balance of payments surplus means that there is a net flow of real wealth out of the country. The surplus is other countries’ paper. The EU negotiators are behaving stupidly, in particular, because they ignore the effect that treating the UK as a third country will have on IMPORTS to the EU. Ireland in particular, will be badly hit because the UK is a major source of so many goods. After Brexit, the Irish will suffer as they will either have to pay the EU tariffs or the extra transport costs of bringing goods from continental Europe instead. They will be hit with a price hike. In other EU countries, there will be specific problems as UK products become more expensive and difficult to obtain – for example, Swedish microbreweries like to use UK malted barley.

The best thing that the UK government could do is to announce that it is committed in principle to allowing unrestricted importation of goods from everywhere in the world (including the EU), without waiting for the governments of other countries to reciprocate. I was going to say ‘reciprocate the favour’, but reciprocation is doing their own consumers and manufacturers the favour; they are the ones who want or need UK products – they do not buy them as an act of charity. The only politicians who seem to have been aware of this and understand why are some in the European Research Group. If the principles they advocate are not followed, the UK will not get the most out of Brexit. There are people outside the UK who want to see Brexit succeed and set the example to other countries of the benefits that will come from a return to the British free trade tradition. Waiting for reciprocation is not part of that. If the other countries’ governments do not reciprocate, it’s their own funeral.