Evaluate the disadvantages of further trade liberalisation to the UK
Evaluate the disadvantages of further trade liberalisation to the UK. (30) Trade liberalisation is considered to be the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing rules, quotas and other requirements). Over the last 50 years trade liberalisation in the UK has become very popular, with the abolishment of capital restrictions in 1979 and the WTOs influence.
One consequence of trade liberalisation has been increased insecurity in the workplace. Manual workers are particularly under threat as companies outsource their production lines overseas to low-wage economies. Many factory workers in the UK have been made unemployed as multinational firms have chosen to relocate their production teams in lower-cost economies such as China or India. Often it can be difficult for these workers to find employment in growth industries due to their lack of knowledge or skill in industry and government assistance is necessary (in the form of training programmes).
This causes increased unemployment. Although this may previously have been a particularly significant disadvantage to the UK in the past, when manufacturing played a big part in the UK’s economy, it is now less so. The UK is currently a country dominated by tertiary sector employment, with 81% of all jobs classified as tertiary. As the UK specialises more it should gain further comparative advantage through economies of scale or new (more efficient) ways of working.
This makes tertiary sectors likely to be growth industries, and thus provided there is sufficient training to update workers’ skills, trade liberalisation may even cause unemployment to fall. Another disadvantage to trade liberalisation in the UK is that there is a real danger of consistently running a current account deficit. A current account deficit occurs when the domestic market are importing more than they are exporting. Although this will lead to an increase in the standard of living in the short term, in the long term it may lead to more debt for future generations.
If trade liberalisation increases it is likely that interdependence between countries will also increase; at the same time national debt is also likely to increasing. In 2007 the world saw the first major global recession. Suddenly capital was hard to find, banks were unwilling to lend to each other – even government bonds were not selling. This led to a sharp fall in demand and high unemployment – for a country with a current account deficit this can be devastating as not only will its debt repayments decrease but demand for its few exports are likely to fall, worsening the position of the current account.
In 2010 the UK paid 30bn in debt interest. As a consequence countries such as the UK may be forced to implement harsh austerity plans or face soaring borrowing costs. The extent of this disadvantage depends on the elasticity of the demand for the products being imported. If the majority of imports are consumer durables from Germany then the effects of a global crisis may be minimised as it is easier to import less of these products since they are nonessential, however an overdependence on food could lead the UK being more susceptible to exogenous shocks.
Domestically produced food is considered to generally be much more expensive – if consumers have taken a myopic view and chosen to import food rather than produce it in the UK in times of crisis there could be real shortages or extremely high prices. However, conversely some believe that the benefits gained from importing food as opposed to growing our own outweigh the expense in downturns, since farming in the EU is so costly (the EU subsidises cows at over 2. 50/day).