I was supposed to speak on a panel organised by the Conservative Environment Network and Unchecked UK at the Tory Party Conference last week on the topic ‘Is Free Trade Good for the Environment?’ Unfortunately I was unable to make it due to transport issues and so was replaced by the much more impressive Eamonn Ives who did an excellent job by all accounts. It was the greatest panel in the history of Conservative Party Conference, locked by a moderator after one hour of heated debate.
Obviously it’s a complex issue and like most things I don’t think you can simply say yes or no. However, I would argue that free trade is indeed good for the environment.
Climate Change
You might have seen this image which seems to do the rounds on Twitter every few months. It is always accompanied with some snide remark about how inefficient capitalism is and as evidence that international trade is bad for the environment.
However, this is in fact incredibly efficient. Free trade allows countries to specialise in the production of goods in which they have a comparative advantage. This specialisation increases efficiency and reduces waste. As Adam Smith wrote back in 1776:
By means of glasses, hotbeds and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of Claret and Burgundy in Scotland?
Smith’s point here is a financial one. It is cheaper to import certain goods rather than try and produce them yourself, but it also applies to the environment. It would be bad for the environment to try and grow fruit in cold countries as it would be an energy intensive activity. It is much better for the environment to grow fruit in a country with a warm climate and let them ripen on a ship where they can be packaged in a country which specialises in that process.
On the topic of ships, it is obviously true that ships do produce environmentally damaging emissions. However, due to the genius that is containerisation, shipping is the most energy-efficient way of transporting goods around the world. While efforts can and should be made to clean up shipping, it is more environmentally friendly than the alternatives.
Free trade can lead to economies of scale. We know that when firms produce goods on a large scale, they tend to use resources in a more efficient way. Free trade increases market access for businesses and gives them access to more consumers. As such, they scale up their production and become more efficient and therefore less wasteful which again is good for the environment.
Moreover, while free trade does give firms greater access to consumers in theory, in practice businesses need to accommodate the preferences of these consumers. We know that consumers in wealthier countries are concerned about climate change and are often prepared to spend more money to purchase goods which have been produced in an environmentally friendly way. This incentivises firms in countries which might have lower environmental standards to reduce their emissions and manufacture their products in a less environmentally damaging way.
Free Trade Agreements (FTAs) themselves can also benefit the environment. For example, modern FTAs now contain clauses about the environment which require trading partners to uphold environmental standards.
Furthermore, formalising trade through FTAs which eliminate tariffs and other barriers to trade can help eliminate illegal and black market activities and smuggling. These activities are often more environmentally damaging and so this is another way in which free trade can benefit the environment.
What is more, FTAs also strengthen ties between nations and increase diplomacy. Given the importance of international cooperation for tackling climate change, FTAs can play an important role in helping the environment.
Finally, free trade can help countries deal with the damaging effects of climate change. For example, free trade can diversify supply chains and make them more resilient to shocks and disruption stemming from climate change. It can also help people in the countries most likely to be impacted to continue accessing the goods and services they need.
Animal Welfare
The environment is not just about the climate. The welfare of animals is also incredibly important and free trade has the potential to improve animal welfare. This is for many of the same reasons that free trade can also help tackle climate change.
As is the case with climate change, consumers care deeply about animal welfare. As such, free trade can incentivise producers in countries with less stringent animal welfare standards to raise their livestock in a more humane and ethical way then they would otherwise have done if they were simply producing for their domestic market.
Again, FTAs themselves can play a role in promoting animal welfare. This is because they contain chapters on animal welfare with provisions for the humane treatment of animals and so ensuring that farmers and other producers treat livestock in a more ethical way.
What is more, FTAs often reduce unethical and illegal activities such as smuggling. For example, the legal trade in certain animals can reduce the demand for illegal animal trade which is unfortunately often associated with poaching and other unethical practices.
Free trade also gives consumers greater access to alternative products which reduce animal suffering such as plant-based ‘meat’ products. This reduces the demand for actual meat and animal products and so means fewer animals need to be slaughtered each year.
Dedicated to the steelworkers of the UK
Free trade is good for the environment but much more can and should be done. Many countries and blocs are now looking into mechanisms to tackle climate change and carbon leakage.
The EU’s solution to this is a Carbon Border Adjustment Mechanism (CBAM). The EU’s CBAM came into force last week and I found myself in the odd position of siding with the UK steel lobby against those welcoming a flood of cheap and dirty steel into the country.
I wrote an article for CapX on why UK Steel is right to warn about this and why the UK should introduce a border-adjusted carbon tax. You can read it here.
Geography is important
Despite the ludicrous claims of certain economic professors, geography really does matter when it comes to international trade. It also matters for the economic growth of countries.
This is something Rishi Sunak does not seem to understand. He used his speech at Conference to announce his intention to shift the economic geography of the UK away from cities and towards towns. I wrote for the Evening Standard earlier this week on why Sunak needs a lesson in economic geography and history. If we want the economy to grow then we need to let our cities grow.
I hope you enjoyed that not at all tenuous link and the rest of the post. I think much more can and should be done to tackle climate change and improve animal welfare across the world. Rather than being part of a race to the bottom, free trade can play an important role in this and, overall, not only has free trade lifted countless people out of poverty, it is also good for the environment.
Thanks as ever for reading!