Wednesday 2 August 2017

"The perfect trade deal"

Spotted by Lola at The Adam Smith Institute:

We would, and we have here and elsewhere, go further and offer the design of the perfect trade deal:

1.There will be no tariff or non-tariff barriers on imports into the UK.

2.Imports will be regulated in exactly the same manner as domestic production.

3.You can do what you like.

4.Err, that’s it.

Now that we've solved the entirety of Britain's trade stance before breakfast we'll get on with the more difficult things later in the day.


The Sage in the comments claims that #2 is a kind of non-tariff barrier. Yes it is, but there is such a thing as *sensible* regulations, i.e. health and safety stuff like cars having to pass an MOT; you can't import nuclear weapons and so on.

35 comments:

NickM said...

"can't import nuclear weapons"

Well, that's my Kickstarter buggered.

Lola said...

I recall that the French are past masters are using #2 creatively to keep protectionism going.

Mark Wadsworth said...

NM, good job too.

L ... which they apply to imports from EU member states, single market or not.

Lola said...

MW. Yes. My point exactlu.

DBC Reed said...

All those years of Baldwin, Chamberlain etc wrangling endlessly about Free Trade or Protective tariffs, whole elections fought over them, not going to happen again is it?

Lola said...

DBCR. Well, I am not so sure. I think Corbyn & Co's seeming support for continued membership of the Single Market post Brexit is all about 'protecting jobs'. As that is what the SM IS about - protectionism. Of course the SM is the EU, it's one of the EU's chief control mechanisms, so staying in the SM is de facto staying in the EU. So watch this space.

DBC Reed said...

@L
I note the assumption that it will only be wicked socialists who will not play fair over tariffs.Joseph Chamberlain assumed it would be wicked foreigners with their dead cheap labour who would undercut British goods.(The original EC was designed to be of participants with roughly equivalent wage levels according to Sir Oswald Mosley founder of the Union Movement).The Free! free of our underpants fair trade meadows where you hope to skip contentedly will be the death of British manufactured exports if not British manufacture.
Read Tariff Reform League on Wiki for previous attempts by Brits to get a fair single market with no undercutting.Only to succeed in 1932 with the apotheosis of Chamberlain tariff reform: the Ottawa agreements. We had it made until WW2 when we lost the lot at American insistence. See also British Empire Economic Conference on Wiki for the gathering of American animus over our worldwide "single market."
It remains surprising that I was running around London supporting a Commonwealth common market in 1975 (first referendum)but I blame older ,Jewish Communist, influences .

Graeme said...

#2 is actually the important thing,the non-tariff barriers. Such as ensuring that imported light bulbs and batteries adhere to our safety standards, that beefburgers do not contain too much human meat etc

Shiney said...

@DBCR
Why the fetish with British Manufacturing? Just askin'....

Lola said...

DBCR Nope. I was not assuming that it was only 'wicked socialists' (a truism in itself, of course :-) ). I am fully aware that the Tories and other loons love protectionism. Were not the Tories big objectors to the repeal of the Corn Laws?

paulc156 said...

Biggest trade barriers are generally patent and copyright protections which in many cases can increase the costs of products by thousands of percent. Then there's the hangover from guilds that restrict new entrants into the 'professions' which similarly lead to excessive costs for the public. A litmus test for free traders is do they want to do something about these massive redistributions of income and wealth or is it just health and safety rules, labour protections and tariffs that bother them. It's only the latter class of 'barriers' to 'free trade' that seem to provoke much ire on here...funny that.

Lola said...

DBCR. And you know full well that we do bot have 'high wages' in the UK. What we have is high taxes and rents (same things) which makes our total cost of labour relatively costly. So the answer is to slash taxes and sort out rents (which we know how to do). And, as an old country with the Rule of Law, property rights, infrastructure, and educated workforce etc. etc. we can clearly compete with low wage countries. The structure of employment and the economy might change and technology will largely drive that. That is tech development will drive more and more efficiencies in production with less and less labour. My own business exhibits that trend. As after all labour is a cost of production, not a benefit.

Shiney said...

@PaulC
"Biggest trade barriers are generally patent and copyright protections which in many cases can increase the costs of products by thousands of percent. Then there's the hangover from guilds that restrict new entrants into the 'professions' which similarly lead to excessive costs for the public."

Absolutely agree.

And I speak as a former qualified accountant of over 30 years experience (the latter bit being more important). I resigned my 'commission' a few years back as I was fed up with my institute who seem to be rent seekers writ large. I've also actively developed an Open Source business management (ERP) system for 10 years, so the sharing and copyright thing is close to my heart as well. So you see.... some of us 'evil capitalists' actually walk the walk.

Mark Wadsworth said...

PC, crikey. Didn't we all just say that health and safety rules are the only ones worth having?

DBC Reed said...

My understanding of protectionism from A level History (where the subject dominated) was that the big compromise was: to trade with an area big enough and diverse enough to supply loads of customers and to provide a load of demand for your goods from the wages they earned supplying raw materials for us to turn into sophisticated products which we then sold back to them. We did not want people outside the loop getting involved.As I remember it, the great Joe Chamberlain declared completely Free Trade didn't work because of all the fiddles.So he pushed for a kind of Imperial Single market based on Imperial preference where the money kept in the Empire: this came into being in 1932 and worked well. The Common Market worked on the same principle but unfortunately with the accession of low wage ex-Communist countries it all went tits up.And remains so with true blue
Englishmen turning on the Poles; I doubt whether they'd be any turning on the French or other members of the original eight with comparable wage levels.
It is really wonderful that we are back to international disputes over tariffs.(Heavy irony)

Lola said...

PaulC. That's very libertarian. Anarcho-libertarians are dead against patents and the like.

Lola said...

DBCR. "to trade with an area big enough and diverse enough to supply loads of customers and to provide a load of demand for your goods from the wages they earned supplying raw materials for us to turn into sophisticated products which we then sold back to them.. I was taught the same. The logic is fallacious. It assumes that one lot has to make stuff and the other lot has to produce primary stuff like copper ore. Free trade does not men that at all. It just means trade of any type.

Dinero said...

On the other hand the unilateral no tariff has a problem if the other partner not doing the same.

Example

Import 100 sacks fleece cost £100
Export 100 sacks fleece, £5 import tax , Revenue £95
Loss £5

Shiney said...

@DBCR.... you didn't answer my question.

Shiney said...

@Din

Huh?

Dinero said...

> Shiney

The import tax makes the trade a loss to the no tariff exporter.

paulc156 said...

NM.
Just a thought on trade barriers/nuclear weapons imports. Trident is pretty much an import item. Manufactured in the US, exclusively maintained in the US, warheads produced at Aldermaston 'under license'/strict supervision from US.

L. Anarcho-syndacalism as espoused by Noam Chomsky is something I did read a bit about some years ago. Left libertarian is probably how I'd describe myself. Dean Baker {US economist/blogger] returns endlessly to the subject of patent and copyright protection ala pharmacy, medical, Microsoft,Disney et al. It's such protectionism that passes for free trade in most discourse either in Europe or the US when in reality it is the opposite of free trade.

Sh. Bloody hell we got something in common!

MW. You could just have agreed with me. Still, I'll take that.

Lola said...

Din

Price of locally produced fleece = £10.

No tariffs. Import 10 sacks of fleece Sellers price = £100. Local buyers pay £10 per sack.
5% Tariff. Import 10 sacks of fleece sellers price = £100. Tax added. £5. 10 local buyers pay £10.50 per sack. Tariff is always incident on buyer.

The real story is when the imported can get fleece £95. The tax of £5 then protects local producers as it prevent local buyers from making a £5 saving.

Dinero said...

> Lola

Thats a cost plus approach to price .

That quite often gets short shrift around this blog .

But yes when thats the case for a particular item the accounting is such.

Dinero said...
This comment has been removed by the author.
Dinero said...

> Lola

Just re- read your comment

You say "locally produced fleece = £10"

So following that, the locally paid price of the imported fleece is also £10. Therefore the tariff is not incident on the buyer.

Lola said...

D.

Locally produced fleece. £10 retail.
Offshore fleece imported at £10 after all costs, no point in exporting.

Offshore fleece £9.50 plus £0.50 tariff - no point in exporting. BUT the local buyer is now paying 50p more than he would need to if free trade existed. He would be paying £9.50 for his fleece.

Dinero said...

No that would not be the case, the agent sourcing the fleece at a lower price would not pass the lower price on to the consumer, they would sell at the local price and make more profit.
Taxes are past on to the consumer when the market is competitive and the tax applies to all sellers. Importing into a market does does not satisfy those two conditions. In principle of course.

Lola said...

D No. no. no.

Where's this agent come from? He's already in the price. The figures are gross of all costs.

Dinero said...
This comment has been removed by the author.
Dinero said...

You introduced the concept of the Agent with the phrase "imported at £10 " Keep it simple there is just the exporter selling to the local market.

You could have an example where the exporter is willing to sell at lower than market price to get market share , that would qualify as a competitive market.

However my point was specific. What is the fundamental effect of tarrifs in the first case when everything else is equal, including production and market prices.

A country needs to pay for its imports with exports with the same revenue , constant current account deficit aside, and it cant do that if the government of the other country is taking some of that revenue.

Lola said...

D

No I did not introduce an agent.

A country needs to pay for its imports with exports with the same revenue , constant current account deficit aside, and it cant do that if the government of the other country is taking some of that revenue

Eh? That's mercantilist thinking. It's false. Trade is universal. That 'value' could come via a third party country. And it does not need to export real stuff at all. Countries that export to us (say) could use those £££ to buy land here - ooo look that just what they have done.

Dinero said...

Yep they could buy land, or hold sterling deposits. Thats a trade deficit and its effect to most peoples way of thinking.

Anyway in my comment there are only two parties for the purpose of pointing out the effect of unilateral dropping of tariffs in the analysis of accounting.

Shiney said...

@PaulC

Yep, good fun when that happens ;-D

@ Din huh? Ever heard of comparative advantage?

Dinero said...

> Shiney

Certainly have , in fact I simplified it to this expression . -
The comparative advantage of producing a product = (international price ratio)/(domestic price ratio) .