The Press TUESDAY, DECEMBER 1, 1936. Liberal Trade or Free Trade?

Press, Volume LXXII, Issue 21954, 1 December 1936, Page 10

The Press TUESDAY, DECEMBER 1, 1936. Liberal Trade or Free Trade?

The League of Nations World Economic Survey for 1935-36, prepared by Dr. J. B. CondiifTe from the information assembled by the League’s Economic Intelligence Service and the International Labour Office, contains a discussion of recent developments in world trade which deserves the close attention of all New Zealanders. One reason is that New Zealand s economy is peculiarly sensitive to changes in the volume and distribution of world trade and another is that the country seems to be on the eve of drastic changes in her trading methods. The present Government has always regarded bilateralism in trade as complementary to its guaranteed prices scheme; and the main purpose of Mr Nash’s visit to London is to seek from the British Government an extended market for New Zealand exports in return for a guarantee that the credits obtained from the sale of New Zealand's dairy produce on the British market will be devoted entirely to the purchase of British goods. If he is successful, and if the scope of the guaranteed prices scheme is extended to cover other primary products, the ultimate result will be State control over a large part of New Zealand s expoit trade. Unfortunately there is a large section of opinion, here and in other countries, which uncritically welcomes any extension of State control over economic activities as a step in the right direction. Governments are usually willing to foster this illusion by dignifying their economic activities with the name planning.” It may be that, in the sphere of domestic policy, planning has achieved some success. But, as Dr. Condliffe shows very clearly, the mechanism of State-controlled trade so far shown itself a vex'y poor substitute for the practice of allowing exporters and importers to se£k their most favourable markets. For State-controlled trade, winch means bilateral trade, leads inevitably to attempts to balance exports and imports as between each pair of countries, to a deliberate abandonment of many of the benefits of international specialisation, to the subjection of trade policy to considerations of prestige and self-sufficiency, to increased difficulty in servicing international debts, and to the creation of expensive and elaborate bureaucracies.

. . more than is commonly recognised [writes Dr. Condliffe], the economic welfare and stability of the modern world has, until recently, been dependent on the trading mechanism by which the whole body of international economic and financial relations was linked in one continuous chain of trading transactions The whole world was organised as a series of closely connected and interdependent markets, the smoothness of whose adjustment led perhaps to an underestimate of their value. The substitution of more rigidly planned and directed systems of independent and closely regulated, if not closed, markets has not eliminated but exaggerated the fluctuations of prices and production, and at the same time has destroyed a large part of/the specialised international co-operation by which the rapid advance of living standards has in the past been made possible.

Most of the apologists for the New Zealand Government’s policy of bilateralism are willing to concede the validity of the case against State-regulated trade; they argue, however, that the trend towards bilateralism is irresistible and that New Zealand has no option but to frame its policy accordingly. “ The best “ informed section of the Labour Government,” writes Dr. Sutch, Secretary-Economist to the Minister for Finance. “ acknowledge the theo- “ retical advantages of free trade, but they see “ a world with international trade enchained “by a system in which they do not believe, “ with a tangle of import licensing restrictions, “ quota arrangements, exchange clearing “ agreements, prohibitive tariffs, and absolute “embargoes. They see this system gradually “ encroaching on New Zealand’s traditional “ markets. Reciprocal trade agreements appear “ to be a feasible method of preserving at least “the trade which exists at present.” If this is what the Government sees, it is seeing out of one eye. The nations of Europe may be slowly strangling their trade in a tangled network of restrictions, but elsewhere, under the leadership of the United States, a determined effort is being made to revive trade by the reduction of tariffs and the abandonment of quantitative restrictions. Already Mr Hull’s programme of tariff bargains based on the most-favoured-nation principle has produced a substantial increase in trade over a group of more than a dozen countries. As Dr. Condliffe points out, the world is faced with two conflicting conceptions of international trade. • Taking the short view, New Zealand may have something to gain by embracing bilateralism. But over the long period her interests will .best be served by a general return to freer trade. It cannot be forgotten that the existing restrictions on the entry of her products into Great Britain are the direct result of European quota systems which have increased the selling pressure on the British market. The argument that New Zealand’s trade policy can have no effect on world trends is not as obviously true as it seems, since what New Zealand does in the next year or so may profoundly affect the trade policy of the Empire as a whole.