Realist, not conformist analysis of the latest financial, business and political news

What Is It About Trade That Kills Intelligence And Minds?

ITV tries to tell us of the effect that Brexit will have upon trade and prices. They do manage to get much of it right but one can see that it’s all been learned by rote. For no one actually thinking would make this mistake:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Those tariffs vary depending on the industry, so if the UK were to trade with the EU on WTO terms it would mean our manufacturers paying an export tax on electrical machinery of 2.5%, but it would be 10% on British cars and for our cheese and dairy farmers the export duty would be almost 36%, which would be felt by the British consumer.[/perfectpullquote]

Tariffs aren’t paid by the exporters of course, they’re paid by the importers. We can indeed say that tariffs will be levied upon our exports, but who is it that pays them? The importers and then the consumers of our exports.

But of course that’s not what I’m really complaining about. So, there’s that export tax – let’s allow them that – so how is that felt by British consumers? It might be, will be, felt by French consumers, or German, but British?

The stuff we send out of the country rises in price and so British consumers feel that, do they?

Sigh.

The only way this can be true is that the tariffs mean the exports don’t take place. Which leaves more cheese and milk swilling around the British marketplace, lowering prices. British consumers might feel that, sure, but why would they complain about it?

If only the people who write the news for us knew anything about the news, eh?

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Jonathan Harston
Jonathan Harston
5 years ago

And if it was on WTO terms it wouldn’t be 10% and 36%, it would be capped at 5%.

Quentin Vole
Quentin Vole
5 years ago

I believe the EU currently imposes duty at 36% on imported, processed food (such as cheese). Does that mean they’re not complying with WTO rules? (It wouldn’t surprise me.)

Jonathan Harston
Jonathan Harston
5 years ago
Reply to  Quentin Vole

I did some digging some time ago, and don’t have the references to hand, but what I recall is that the EU’s 36% import tariff on cheese was applied before the 1992 Uraguary round of GATT/WTO agreements. Agreeing with WTO rules binds you not to increase existing tariffs, with the expectation that you reduce them to a maximum of 5%. So, the EU cannot increase their tariff on cheese, but can keep it at 36% as it is a pre-Uraguay tariff. A post-Brexit UK would be a ‘new entrant’ to WTO rules, so it would not be able to impose… Read more »

timworstall
timworstall
5 years ago

That could all be true. But I think the real point – note the think, I’ve not looked it up – is that if you’re a customs union, then you can have higher non-WTO barriers around the outside of the CU.

Shadeburst
Shadeburst
5 years ago

To be competitive in the EU, British exporters might have to reduce their prices by 1/(1 + tariff %). Thus although they do not directly pay the tax, its incidence is upon them.

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