Exiting the European Union and Global Trade

Debate between Kelvin Hopkins and Liam Fox

Thursday 6th July 2017 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

I am listening with interest to what the Secretary of State is saying, but one point that he has not touched on yet is exchange rates. Is it not absolutely essential that appropriate exchange rates should be arranged between nations so that trade can operate fairly? If a country depreciates massively, it can develop a big trade surplus, and China has done precisely that in recent decades. Does the Secretary of State not agree that exchange rates are crucial?

[Dr Fox]

That is an important point, but I would distinguish between artificial and intentional currency manipulation and a free market with floating currencies. I happen to believe that floating currencies are one of the ways in which we allow our economies to have shock absorption so that we do not take all the economic pain through unemployment. One of the problems with the existence of the euro is that some of the countries of southern Europe that might have chosen other mechanisms to adapt to the process of change had, in the end, to opt for high levels of structural unemployment because they were unable to do so. The hon. Gentleman’s point is correct, however. Artificial manipulation of currency is different from the workings of the general economy and floating currencies.

Such is the power of free trade that even if we ignore the social and humanitarian benefits that it has brought to the developing world, it would still be indispensable from a purely economic standpoint. During the 1990s, per capita income grew three times faster in the developing countries that lowered trade barriers than in those that did not. That effect is not confined to the developing world, either. Analysis by the OECD has indicated that a 10% increase in economic openness is associated with a 4% increase in output per head of the working population. In other words, free trade works.

Globalisation has been of huge and sustainable benefit to the world economy, through trade, migration, specialisation and innovation. Those advantages exist at every level, from macroeconomics right down to individual firms. Increased competition, economies of scale and global value chains have all contributed to a productivity revolution, boosting the output of firms across the globe. Although it might not always be noticed, the wider benefits of a liberal trade policy have spread to consumers and households by providing a wider choice of goods at a lower price.

In the decade to 2006, the real import price of clothing fell by 38%. In the same period, the price of consumer electronics, as we all know, fell by 50%, despite the rapid technological improvements that saw mobile phones go from a $4,000 brick that was hard to carry to computers no bigger than the palm of one hand. Those are the tangible benefits of trade, and their importance in improving the lives of the people of Britain must not be underestimated. Of course, in any rapidly changing economic environment, we should ensure that the country’s growing prosperity spreads to all corners of the United Kingdom. It is therefore not only right but important that Governments can mitigate the effects of globalisation and provide the tools through which individuals and economies can adapt and prosper. That is how we provide both economic opportunity and security in an era of sometimes bewildering change.