Free trade deals cost jobs – but they create far more!

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Jonathan Arnott MEP makes clear that Brexit is only a minor factor in the demise of the X-Trail plans in Sunderland & that there are far more important factors at play. Nissan has a habit of making threats to influence UK policy – like trying to push us into the Euro – but the argument needs to be made clearly and consistently that while free trade does indeed cost jobs, it creates far more. Free-traders in the UK will have to be prepared to make these arguments to avoid a reversion to protectionism.

Free trade deals cost jobs. There’s no point denying that the sky is blue, or that the grass is green. When the European Union and Japan have a free trade agreement, it’s natural that this will impact upon the production of the Nissan X-Trail in the UK. Japan will be able to produce cars in Japan and sell them into Europe without adding additional tariffs. Whether it tips the balance with Nissan, or anything else, when you lower the barriers on international trade, you’ll end up with some situations where foreign manufacturers can sell things in the UK and undercut products made in the UK.

 

Now with any business, there are different competing interests; decisions aren’t taken for one reason alone. I wouldn’t claim that uncertainty over Brexit isn’t a factor, just that it’s not the main factor:

 

Fact #1: Nissan has been using business decisions to attempt to change UK policy since the 1990s, when it threatened to leave the UK if we didn’t join the euro (didn’t happen).

 

Fact #2: The EU-Japan Free Trade Agreement means it’ll be cheaper for Japan to build the X-Trail in Japan.

 

Fact #3: The Nissan X-Trail is a predominantly diesel-fuelled vehicle; the petrol version is underpowered and rarely sold.

 

Fact #4: Consumers were repeatedly told that diesel engines were better for the environment than petrol engines. Now, consumers are being told the opposite.

 

Fact #5: Taxation, and the threat of further taxation, is disincentivising the purchase of diesel vehicles across Europe.

 

Fact #6: Sales of diesel vehicles have been dropping dramatically in recent years.

 

Fact #7: The Nissan X-Trail can be produced with a petrol-hybrid engine in Japan, which gets around this issue. That engine cannot be produced economically in Sunderland.

 

Fact #8: A high-profile arrest of the former CEO of Nissan has damaged consumer confidence.

 

Fact #9: Brexit is an easy scapegoat for other problems. Any company losing jobs can use Brexit as a catch-all excuse so that it doesn’t have to admit its own business failings.

 

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Fact #10: Nissan has repeatedly sought taxpayer subsidy from the UK government.

 

It’s not all about Brexit, and it’s not all about free trade either – only Fact #2 above is caused by free trade. It would be churlish to deny the existence of it, however. You might, therefore, be wondering what kind of callous, indifferent free-marketeer I must be if I’m still advocating the expansion of free trade. The reason is simple: free trade deals also create jobs. They create more jobs than they cost.

 

The EU-Japan Free Trade Agreement (FTA) isn’t ideal in many ways, not least because it doesn’t cover the things that the UK would want it to cover. When the European Union as a bloc decides to act, all 28 countries have to negotiate internally to decide the common negotiating position. Key British interests may never even make it to the table. There’s no need to throw the baby out with the bathwater though; post-Brexit we need to be able to negotiate our own deals.

 

FTAs create jobs in a couple of different ways. Firstly, they create jobs in the UK for items that we’re able to sell into the market in the other country. We need to make sure that whatever happens with Brexit, we’re able to negotiate trade deals that work for us. We are the world’s second-largest exporter of services, but we don’t sell many goods abroad. The shape of any successful FTA between the UK and almost any country in the world (barring America) will be simple: We’ll take your goods if you’ll take our services. Provided that whatever Brexit means, it enables us to sign FTAs involving both goods and services, we should get a clear win.

 

Secondly, FTAs lower business costs and create jobs. Suppose that you’re a tech company which has to import a processor chip as an essential component for the products you manufacture. If the processor chip is no longer subject to a tariff, your costs decrease, your prices to the consumer decrease, you sell more stuff, your company expands, and you create jobs.

 

Thirdly, FTAs lower prices for the consumer by cutting tariffs. When a consumer has more disposable income available, they spend more money and there’s a knock-on effect to the economy.

My argument isn’t that FTAs don’t cost jobs. Of course they do; it’s blindingly obvious that some jobs will be lost when you reduce the cost of importing goods to the UK.

 

So why does the ‘free trade cost jobs’ mantra gain any traction at all? Suppose that the UK were to sign an FTA which creates 100,000 new jobs but loses 50,000 jobs. There’s a net benefit to the economy overall. The UK is better off for having signed the FTA, and consumers get a modest benefit into the bargain. The problem is that jobs created are spread across the whole country. Job creation may be direct (a company expanding to sell into that market) or indirect (a company expanding because it’s able to take advantages of new opportunities). In neither case will the media cover the job gains; it’s job losses that make headlines. People will always see the negatives because they’re more tangible – and more localised – than the positives.

 

If you support free trade, you’ve got to be comfortable making this case. Economic protectionism is on the rise. Whole generations have grown up which haven’t seen the spectre of the Soviet Union, haven’t seen the devastating impact of the Super Tax in the 1970s, have never known high inflation, and who truly believe that in every single country in the world where socialism has been tried, it ‘isn’t real socialism’. Such protectionism combines the worst of left-wing fairy-tale economics with right-wing jingoism, but I won’t develop the point to its logical conclusion – lest I fall foul of Godwin’s Law.