No, Gove! Just no!

From the BBC:

Environment Secretary Michael Gove has promised that the government will apply tariffs to food imports in the event of a no-deal Brexit, to provide "specific and robust protections" for farmers.

His remarks come as the government is poised to release details of tariffs (taxes on imports) that would apply to thousands of products coming in from around the world, if the UK leaves the EU without a deal.

Many supporters of Brexit argue that tariffs on food and other items should be scrapped in order to lower prices for consumers.

The logic is perverse:

But farmers fear that cheap imports and lower standards would destroy many parts of British agriculture.

"Your concerns have absolutely been heard," Mr Gove told a conference of the National Farmers' Union (NFU). "It will not be the case that we will have zero-rate tariffs on food products. There will be protections for sensitive sections of agriculture and food production." He added that an announcement on a no-deal tariff schedule "should be made later this week".

"If you obliterate the tariff wall… we would be massively undermined by food produced to standards that would be illegal to produce to in this country," NFU president Minette Batters told the BBC. "It would decimate British agriculture - it is quite honestly as simple as that."

Let's follow the logic as far as we can.

1. The UK has a fairly similar climate to other European countries and the same standards, so there is a level playing field [sic] for things like potatoes, wheat, beef, milk etc. So that's no argument for UK tariffs on food from other EU Member States, i.e. no change to current situation.

2. The UK does not have a similar climate to much warmer countries outside the EU, where you can grow bananas, olives, oranges. Quite possibly these countries have lower standards, but there aren't UK banana, olive or orange farmers to be protected, so there is no reason to "protect" them by imposing tariffs on bananas.

3. "But chlorinated chickens!!" shouts the crowd. That's a different topic, if these are proveably unhealthy, the UK government should just ban the import thereof.

'Cause London taxi drivers care so much about reducing pollution, innit?

From the BBC:

The mayor of London has urged the government to follow New York's example and allow a cap on the number of minicabs in the capital. Sadiq Khan said an increase in private hire cabs needed to be halted to combat congestion and improve air quality...

In 2010-11, TfL counted 61,200 private hire drivers and 50,663 private hire licensed vehicles in London. This went up to 113,645 drivers and 87,921 vehicles in 2017-18 - an increase Mr Khan described as "massive" and "unsustainable".

Blatant protectionism of course. For some reason, London mayors - of whichever political party or none - always kow tow to the London cabbie lobby.

Steve Wright, chairman of the LPHCA, said a cap would only push up prices, make it harder for companies to recruit drivers and leave minicab users stranded: "This is a ridiculous proposal. It's just a draconian thing from years gone by. It's protecting the black cab industry and will be detrimental to consumers."

Nailed it.

The final insult is hurled from the parapets of the cosy protected cartel, from the FT:

Steve McNamara, general secretary of the Licensed Taxi Drivers’ Association, said: “We support the mayor in calling for a cap in private hire vehicles in London. With the number of PHVs on London roads nearly doubling in recent years, Londoners have seen a rise in congestion and a negative impact on air quality.” There are 23,800 licensed London taxi drivers.

Funnily enough, official London taxi drivers all drive diesel vehicles and leave their engines running while in the taxi ranks.

Unintended but inevitable consequences

From the BBC:

Donald Trump has criticised the Harley-Davidson motorcycle firm over its plans to shift production away from the US in order to avoid European Union tariffs.

Ahem, the actual sequence of events was:
1. Trump imposes tariffs on imports to the USA, including from Europe
2. The EU imposed similar tariffs on imports from the USA
3. Harley-Davidson did the sensible thing.

From City AM:

BMW has indicated it could be forced to close its plants in the UK if it is unable to import components rapidly enough from the continent after Britain leaves the EU...

The warning from the car manufacturing giant comes hot on the heels of similar expressions of concern by Airbus and Siemens over the slow progress of the Brexit negotiations.

Last week, Airbus warned it could leave the UK in the event of a hard Brexit, putting around 14,000 jobs at risk. The firm said it would consider moving out of the UK if there is no transition deal involving ongoing membership of the single market and customs union*.

Siemens also issued stark warnings, with chief executive Jügen Maier criticising the government for thinking the negotiations were going to be easy and for using "unhelpful" slogans.

This cuts both ways, and is down to pig-headedness on the part of the UK government as much as the EU. Pan-European manufacturers worry they won't be able to get non-UK manufactures into the UK and won't be able to get UK manufactures into other EU Member States, or at least, nowhere near as smoothly as before, thus buggering up their highly organised and choreographed international 'just in time' assembly systems.

Overall, it's a loss to mankind.

If it made economic sense for each manufacturer to have a small, self-contained assembly system within each country (or trade bloc), they would do it anyway. For example, there are Coca Cola bottling plants dotted all over the world because it is not a particularly sophisticated technique so any economies of scale from centralising would be wiped out by transport costs. Car and aircraft manufacturing is pretty much the opposite of that, they source parts from all over the world, assemble in one giant assembly centre and then re-export the finished product all over the world.

* In this context, I am not sure why the 'customs union' is particularly important, it's harmonisation of standards and import/export procedures (the main elements of the 'single market') which are the more important.

Reader's Letter Of The Week

It was in this week's City AM, but those have already gone to recycling so I can't give credit to the original author.

The gist of it was that there's no point squealing (The Guardian and The Daily Mailexpressgraph making common cause for once) that the UK government has decided to allow a foreign-owned business to print UK passports instead of British business De La Rue.

De La Rue don't just print UK bank notes  and passports. As the self same Guardian points out:

De La Rue also prints money for Qatar, Kuwait, the Bahamas and the Seychelles, among others...

As well as UK passports, the company manufactures identity documents and e-passports for countries as far apart as Trinidad and Tobago, Qatar and Afghanistan. On occasion it also uses its printing presses to make special-edition bank notes. A Star Wars note issued in support of the Together For Short Lives charity raised more than £185,000 in an eBay auction in November.

If all those countries followed the preferences of their own Guardian/Daily Mailexpressgraph protectionist tendencies, then De La Rue would be in real trouble.

Well that didn't last long.

When Trump said that the USA would introduce tariffs on steel and aluminium*, applying the usual protectionist-mercantilist-socialist-populist logic, right thinking people everywhere were up in arms.

* Given the tortuous nature of US lawmaking, it is as yet unknown whether it will actually happen and when. Interestingly, it appears that the idea is not too popular with the majority Republican congressmen and -women, but has widespread support among the minority Democrats, go figure.

Give it a couple of days and how does Juncker, claiming to speak on behalf of the EU (again, whether he has the authority to impose this or not is another question), respond?

By threatening that 'the EU' would engage in tit-for-tat protectionist-etc nonsense, at which, Trump merely upped the ante.

Free trade my left foot, remind me, how would the UK benefit by remaining an EU Member State and being dragged into all this? What happened to that much vaunted EU-US free trade deal that we were going to miss out on if we left?

AFAIC, the USA's loss is every other net steel-importing countries' gain, such as, for example, the UK. All things being equal, world steel prices will fall slightly as will world prices for "Levi's jeans**, bourbon and Harley-Davidsons". That looks likes a win-win for any country that is neither the USA, a member state of the EU nor a net steel exporter.

** My Levi's denim jacket was made in Vietnam IIRC (I can't check because I cut off the label).

Cronyism Rules OK?

From here:

I quote:

1. Pick a field where you can establish a monopoly – such as Mexican billionaire Carlos Slim who from 2010-2013 was ranked the richest person in the world after taking control of the country’s entire telecommunications market.

2. Expand as quickly as possible – Amazon has eschewed early profitability to becoming the “everything shop” and as a result investors have poured money in.

3. The worst place to do business is really the best – it is easier to dominate emerging markets due to the lack of competition and potential for growth.

4. Take risks with other people’s money – do all you can to encourage investors and then gamble their money rather than your own.

5. To get rich you need to own your own business and property rights – Bill Gates’s Microsoft at one point had a 95 per cent share of the operating systems market, protected by intellectual property rights.

6. Spin complex laws into gold – set up in industries bound by such convoluted regulation – for example agricultural subsidies and banking regulation - that it is easy to bend the rules as nobody understands [them] anyway.

7. Establish business networks – telecoms networks and shipping networks have created a lot of billionaires’ fortunes as they can squeeze out all competition.

No. 6 is my favourite...

Generally that's all about Private Enterprise, not Free Enterprise.

Protectionism

From Buzzfeed:

2U offers small class sizes and technology that allows interactive courses to be conducted live online. Its degrees cost exactly as much as they would if you attended on campus. Yale said it would charge $84,000 for its online medical science degree, and says it will be identical to the degree earned by students on its campus.

At the town hall meeting in the wake of Yale’s announcement, that claim—which is one of 2U’s biggest selling points—was a target of students’ criticism, according to two people present. “At the very least, it should be a separate degree,” said Chandra Goff, a recent graduate. “But the sentiment was also that it shouldn’t go forward at all.”

“This is a scar on our credential,” said Daniel Cervonka, an alumnus of Yale’s physician associate program who attended the meeting. “To offer a Yale degree online is not a good idea… It’s devaluing the degree, and it’s devaluing the profession.” Cervonka is the director of the PA program at the University of Bridgeport.

Graduates want less people with their qualification. Lecturers don't want a couple of lecturers doing the courses for all students.

UK imports of goods, VAT

Another thing that appeals to people about VAT is that it acts like a kind of import duty, thus appealing to protectionist instincts. I don't agree with protectionism, but even if I did, then following their logic, VAT must also discourage people in the UK from trading with each other, thus dampening the economy quite significantly. So clearly, getting rid of VAT has to be top priority once we've left the EU (who say that we have to have it).

On a tit-for-tat basis, however, and seeing as UK exports to other countries are probably liable to import duties in other countries, or to VAT at point of sale in other EU Member States, could we do the honest thing and replace VAT with import duties alone? According to HMRC Trade Info the total value of imports in the eleven months to November 2011 was £366 billion, which rounds up to £399 billion for a full year (out of which around £50 billion is oil).

As it happens, forecast VAT receipts for the current year 2011-12 are £97 billion (from PSFD), which means that we could replace VAT in its entirety with a flat 24% ad valorem import duty on all imported goods. Imports of services are a quarter as much again (from here) (i.e. around £100 billion for a full year, but it's much more difficult taxing those).

As it happens, 24% is not far from the average import duties, sales taxes or VAT to which UK exports are liable when they are sold in other countries.

Just sayin', is all.
------------------
It would be interesting (but difficult) to work out how such a tax would compare with the actual VAT payable when imported goods are sold in the shops; the main rate of VAT is 20% but this applies to the entire purchase price, which is usually a large multiple of the amount paid to the factory or farmer abroad. So if a telly is imported for £100 and sold for £300, a 24% import duty on the £100 is actually far less than the 20% VAT on the £300; but if beans are imported for 50p and sold for £2, clearly 24% of 50p is 12p and there is currently no VAT on basic food and groceries, so the import duty would be more.

Please sir, may we have some more?

The Association of Residential Letting Agents hold out the begging bowl while betraying a complete absence of logic:

The Association of Residential Letting Agents (ARLA) conducted the poll to assess the state of the Private Rented Sector (PRS). More than half (58%) of respondents at the 2010 ARLA annual conference highlighted the issue of insufficient supply of rental stock as the biggest issue facing the sector. (1)

Ian Potter, operations manager at ARLA, said: “This is a very serious issue. At the end of last year we highlighted that a lack of properties will be a defining factor in the housing market in 2010 (2) and our member agents across the country have confirmed this opinion as fact. (3)

“The UK is in dire need of good quality rental accommodation to counter the lack of broader housing supply(4) across the country and the PRS needs tangible Government support to help achieve this.(5) This should be in the shape of incentives for improvements on older properties,(6) assistance for landlords in gaining mortgage finance,(7) and regulation to drive unethical letting agents out of the industry.(8)

1) Well they would say that, wouldn't they?

2) Well let's allow more homes to be built, eh?

3) Nope. The survey confirmed that this opinion is, rather unsurprisingly given the target audience, widely held. That doth not make it a 'fact'.

4) Given a fixed number of houses, whether they are owner-occupied or rented makes little difference, although to be fair, the rental market tends to lead to a more efficient use of housing. I'm sure few people would pay rent all year round for a second home or holiday bungalow which they only use a few weeks a year (although they are happy to take on mortgages to buy them, go figure).

5) No, it needs 'less government interference to garner the NIMBY vote', see (2).

6) Giving taxpayers' money to landowners who don't maintain their properties? Excellent plan, not.

7) Yup, let's keep blowing that house price bubble.

8) ... and let's round off the day by calling for barriers to entry, job done.

Another reason not to give taxi drivers a tip

From The Evening Standard:

Hundreds of black cabs today blocked streets in central London in protest at a minicab scheme which they say is taking their trade.

Drivers gathered in Trafalgar Square and The Mall and drove through Parliament Square shouting slogans against the Westminster council operation which allows* the West1 car service to use a bus stop as a minicab rank in the evening.

"Taking their trade"? Dude, WTF? Is not their trade by birthright or something, is it? Sure, minicab drivers ought to be vetted for motoring or violent offences, but apart from that, the more minicab and taxi drivers there are, the better it is for, er, the paying customer, to whom "the trade" actually belongs. Are these gits not familiar with the expression "taking your trade elsewhere"?

This is pure unbridled protectionism at its worst.

* I wonder whether the Council charges West1 for this privilege - until and unless all restrictions on mini-cabbing are lifted, any restriction on supply creates windfall profits for the incumbents, for which they ought to pay. The price could easily be set by auction.

Counter-intuitive (4)

As we know, recessions tend to trigger protectionism. Mark's Any pointed out that the whole British job for British workers row that has flared up is tilting at windmills, to which I commented "While I am rabidly anti-EU, I can also see that international labour mobility is probably a good thing...".

Turning to Obama Bin Laden's call to "Buy American", Tim W compiled a list of people who were against the idea over at the ASI 'Blog. The ever readable Karl Denninger (an opponent of bail outs; a proponent of debt-for-equity swaps and as far from protectionist as you can get), came up with a good argument in favour of "Buy American".

To summarise, "... a big part of the current mess [is] a direct consequence of the mercantilism of China, India and many other "low-cost" producers in the world... Global free trade eh? Uh, not quite. These same nations have a hodge-podge of subsidies for local producers for their economy, thereby making import from us either uneconomic or, when they can't manage it that way, they put procedural, capital control and other hurdles up that make "free trade" a joke going the other direction. "Buy American" is perfectly legitimate for government spending in an economic stimulus bill. After all, is not the essential purpose of such a bill to stimulate OUR economy? It is not to stimulate the economy of CHINA, is it?"

Fair enough. On the one hand, if some producer is prepared to sell goods at below cost (which with China is undoubtedly the case), the response should either be "Great! Bring it on!" or the importing government could just slap import duties on the goods equivalent to the subsidy at the other end to level the playing field.

If you believe in free trade, we could allow those subsidised goods to come in without tarrifs, which surely frees up our own economy to shift to higher value stuff? As somebody once said, 'they sell us a hundred million shirts, we sell them one Airbus'. The problem is of course that not only did China and Japan export like maniacs, but they did it on credit - they lent a lot of the proceeds straight back to Western countries. That's why those two countries now hold one-third of global currency reserves.

If the West had had the good sense to invest that money in high tech stuff, then we would have benefitted doubly from the deal. The problem is, we didn't - governments allowed all the cheap credit to go into a property price bubble that doesn't add one dollar, one pound or one Euro to our economic output.

Hmm. But, as DBC Reed explained, diverting cheap credit away from land speculation and into more productive activities is actually quite simple...

Learning the lessons of The Great Depression

It appears to be broadly agreed that one of the things that deepened and lengthened The Great Depression was protectionism, in particular by the USA, although I am sure many other countries were just as guilty.

It's good to see that they've learned that lesson ... oh, sorry, I meant forgotten.

Reader's letter of the day

From today's FT:

Sir, Your excellent account of the events unfolding with the car manufacturers of Detroit reminds me of Russian government protection for AvtoVAZ, maker of Lada cars. The Russian story lacked the flamboyance of publicly staged performances - but then who can beat the Americans in this department?

For the last decade Russian officials levied taxes on the importers of passenger vehicles with a view to helping AvtoVAZ. Guess the result? AvtoVAZ continues to produce the cars that are slight variations of the Fiat 124 that itself was a decent motor car for the early 1960s.*

Anton Krylov, London.

* My Dad bought one of these in the mid-1970s, it was still pretty decent then. But I doubt they export very many, i.e. Russians get poor value for money and the overall net increase in Russian exports is probably nil.