In today's Scotsman Michael Moore, Secretary of State for Scotland is reported to have said in a speech to US business leaders that free trade between the UK and the US is essential to economic recovery and prosperity in both countries.
This is incorrect.
It is also a diversion from the real reason holding back recovery: a lack of demand. And a lack of demand worsened by the UK coalition government's fiscal austerity policy.
This not to argue against free trade, which can lead to improved economic efficiency if trade barriers are reduced and removed. But as Paul Krugman notes in this recent post, the costs of current levels of protectionism pale in significance against the resource waste of high levels of unemployment and output much below capacity.
Research by K. Bhattarai (2001) in this paper found that gains from moving to global free trade were 1.3 percent of global GDP. For the UK, gains were about £7 billion in 1995 prices or, by my calculation, just below 1 percent of GDP. And this is from global not bilateral free trade.
So, clearly the gains from a bilateral removal of trade restriction between the US and UK would be small compared to an estimated UK output gap averaging - OBR page 38 and 39 - just under 3 percent of GDP.
Moreover, Krugman rightly points out that one shouldn't view the removal of trade barriers as a job creation tool. The reason is that while getting rid of trade restrictions should raise trade, imports will rise as well as exports. In Krugman's words
There is no reason at all to assume that the jobs gained from export creation would exceed the jobs lost to import competition.
Globalization is not the answer to the Lesser Depression.