Brexit – Salt and Vinegar Please, Not The Three Course Meal

Liam Fox and Sir Martin Donnelly are having a little spat over Brexit and trade. It should be said that Fox is correct here – not something we’ll always say – and the civil servant wrong. The reason isn’t just about their negotiating stances, whether we should go for the salt and vinegar of a packet of crisps or the full three courser the EU might offer. The actual reason is because our civil servant – you know, the knighted brightest of his generation and all that guff – entirely misunderstands the very point of trade itself.

It ain’t about exports, imports are the purpose of the whole trade game.

Fail to grasp that and you’ll forever be pissing down peoples’ legs and telling ’em it’s raining. But that is the mistake that’s being made.

In an attack before Dr Fox’s keynote address on Brexit today, Sir Martin Donnelly, who left his role running the Department for International Trade last year, said that the policy was like “giving up a three-course meal for the promise of a packet of crisps”.

Well, it is true that EU meals are pretty good. We’ve been and done journalistic style things in London and Brussels and over there they even feed the journalists. Really, not quite the thing experienced practitioners expect, those over here expect booze rather than anything solid. OK, at least hope for.

But, you know, whatever people say, eh?

As reported earlier, Liam Fox’s speech on Brexit has been overshadowed by an intervention from Sir Martin Donnelly, who until last year was permanent secretary at the Fox’s own department for international trade. Donnelly told the Today programme this morning that leaving the customs union (the government’s policy) would be like “giving up a three-course meal, the depth and intensity of our trade relationship across the European Union and partners now, for the promise of a packet of crisps in the future” and that it would take a “fairy godmother” for the government to get what it thinks it will get from the Brexit talks with the EU.

That’s edging toward the point that Sir Martin is incapable of understanding. Here it is more explicitly:

However, Sir Martin flatly dismissed this argument, and will say in a speech tonight that Dr Fox’s preferred trade policy would significantly damage the competitiveness of British firms.

The competitiveness of British firms is a second order effect in trade, not first.

Sir Martin told the Today programme on BBC Radio 4: “You’re giving up a three-course meal, which is the depth and intensity of our trade relationships across the European Union and partners now, for the promise of a packet of crisps in the future if we manage to do trade deals outside the European Union which aren’t going to compensate for what we’re giving up.

“We risk losing that level playing field or being shut out entirely and we have got to look at how this really works in practice.” He added that the EU was the world’s “only functioning market for services” and key to Britain’s success as a service economy.

“The challenge if we choose not to stay in the single market is can we negotiate equal access in all those areas of services without agreeing to obey the same rules as everybody else?

That’s drivel. Sir Martin is assuming – thinking if he is in fact doing so – that the point of trade is so that we export. That trade deals are about who we may export to. Therefore it’s good for the British economy if other people don’t put barriers in the way of our exports. Thus, obviously, having tariff and quota free trade with the EU is something precious to be preserved.

It’s also economic cockrot.

Imports are the purpose of trade, exports just what we do to gain them. Imports are going shopping, exports are going to work to be able to go shopping. The aim and purpose of the entire fandango is to gain access to those things which foreigners can do better than we can. Doesn’t matter why they can do them better either. That they can is enough – we are made better off by getting those things they do better, cheaper, faster, with nicer stripes on the side.

The effect upon the competitiveness of UK firms is a second order one. Those who cannot compete with the imports get displaced, raising the general productivity of the UK economy. Even the Treasury managed to get that one right.

So, now we’re looking at trade the right way around, imports matter, exports are just a cost of them, we can see which way our tariffs are buttered. We want to have a system where we don’t place barriers, duties, tariffs and quotas, in the way of the things we desire, those imports. The European Union insists that we impose such on imports from some 80% of the world – all the parts of it which aren’t in the EU in fact. The EU’s trade system thereby makes us poorer. Leaving it will make us richer.

As, in fact, good academic research shows. As Patrick Minford has spent more than a decade pointing out, moving to unilateral free trade free of the EU will boost GDP by 3%. It’s the staying in the EU trade system which impoverishes, not leaving it.

It has to be said that most people don’t get this about trade, the manner in which imports are the aim of the whole game. But we might hope that those who would rule the country, even those who have helped to do so like Sir Martin, would manage to grasp the basic truth, don’tcha think? And that they don’t rather explains how appalling our trade relationships with the world actually are?

Actually, being entirely 180 degrees wrong on such a subject rather explains how appalling our governance is in general, doesn’t it?