In a discussion with a friend about the EU and Free Trade I wrote the following. Some other readers might be interested:
Full blown free trade never did seep into Europe, especially when the English were starting to lose its export trade to European countries in the 19th century. Instead of being totally rational about it, as David Ricardo repeatedly was in the House of Commons in the 1830s, and firmly remaining free trade, the UK responded with Imperial Preference — that is, free trade with its colonies but not with other countries.
Besides, it’s to be wondered whether the UK was ever fully free trade anyway. It was able to protect its markets early in the 19th century because it had a large Navy able to prevent merchant ships from other European countries from trading with them. As the UK became immensely prosperous during the 1820 – 1880 period, it was able to made sure that its Navy (and Army) became even larger.
When more and more gold entered the world market in large amounts (from the large gold finds in California, South Africa and Australia) and trade (always using gold) started between other countries without reference to the UK, then a world price had to be started, especially as, by about 1910. all the world trade, whether the UK was involved directly or not, began to be insured by London firms.
And what better place to have a gold exchange where a world gold price could be firmly established than in London! And still, to some extent, under our control — though fast fading. So just at the time that our manufactured products were finding it harder going, so our financial services began finding it easier going — and even more prosperous.
The idea of free trade started to take off not in Europe but in America. By the time that China started to trade into the world economy in 1979, America was so gung-ho about free trade that it allowed its large firms to set up in China even though China itself didn’t allow its currency, the renminbi or yuan, to be free against the dollar or other currencies.r
That was the big mistake that America has made. China was able to devalue its yuan step by step as America was devaluing its dollar in order to export whatever manufactured goods it was still making at home.
Back to Europe, the EU never has been free trade even though it says it is. It is only free trade within its own borders, but setting up a 20% tariff against imports from every other country. That is why the EU is doing itself down. It is only carrying out its own version of the UK’s Imperial Preference and will likewise not succeed in due course.
The EU has only done moderately well so far because Germany, Belgium and Holland are making the advanced engineering products that China still needs. As China starts to make those in the next 20/30 years then the EU as whole will be dished — it not before then.
Gradually, the yuan will become the only trading currency in the world that could become a gold standard again. Whether it will do so is a matter of conjecture, though I am of the opinion that it will do so — there being a lot of suggestive evidence that China is building up a large official quantity of gold to rival America’s (8,000 tonnes) and Germany’s (approaching 4,000 tonnes).