No Need to Queue: The Benefits of Free Trade without Trade Agreements
It is widely believed that trade agreements are necessary to enable the UK to prosper in world markets. In reality, unilateral free trade is possible and offers many benefits. The UK’s exports of services to the EU owe little to the Single Market as national barriers to trade in services still dominate in Europe. Trade agreements typically involve substantial trade diversion as domestic interests exert pressure on governments to protect particular producers. In world terms, the UK benefits from the ‘importance of unimportance’. If any country or group of countries decides to erect trade barriers against us it cannot influence world prices and we can trade elsewhere, and when the general equilibrium consequences are properly understood, trade agreements by small countries are seen to reallocate output, but do not alter world prices in the long run.