söndag 29 oktober 2017

Protection = self-imposed sanctions

Sanctions are imposed on a country as a punishment. The ultimate form of sanctions is a military blockade - like the Germans did in the two world wars - submarines, battleships, bombers, mines, to prevent goods reaching Britain and the other Allies. Protection has exactly the same effect. It is astonishing that people find it so difficult to see the similarity.

Chinese protectionism and the sale of goods at below cost is at the cost of the Chinese. If their government is stupid enough to force its people to make stuff and give it away or sell it for less than it costs to produce, then the only rational reaction from the rest of the world is to take it and say, "Thank you very much!"

If someone in your street set up a bakery and insisted on selling the bread at half price, everyone in the neighbourhood would scratch their heads for a while and then take advantage of their stupidity. Nobody else would try to compete directly. Sooner or later the crazy baker would get the idea that customers were taking the mickey, or realise that they could not carry on like that indefinitely, but in the meantime they would make the most of the opportunity.

Economic models assume rational behaviour. When one player, in this case the Chinese, behaves irrationally and effectively gives stuff away for next to nothing, or everyone else has to work round their stupidity until they come to their senses. When and if that happens, they will want the proper price for their products.

What is the economy for, if not to enable people to provide themselves with the goods and services they want and need? It does not exist to keep people busy.

lördag 28 oktober 2017

Free trade deal oxymoron

Free trade means a country's rulers allow goods in tariff free and with minimal other restrictions. It is a unilateral action. It was demonstrated long ago by the classical economists that it is optimal for the importing country.

Other countries can do the best for their own people by following suit. Or they can cause them trouble, expense and inconvenience by imposing protectionist measures, eg the EU, Trump, Peron, etc.

"Free trade deal" is a contradiction in terms.

Trade deals

The classical economists demonstrated that if country A imposes restrictions against country B, then wealth in country B is optimised if it does not impose retaliatory tariffs. Which makes trade deals pointless and irrelevant. Just open the doors.

Obviously we do not want people selling 110 volt appliances when the national supply is 240 volts, and chlorinated chicken should be marked at least with its country of origin, but the general principle holds. A lot of issues with standards can be dealt with by control at the retail end, so that responsibility passes up the supplier chain to the importer (or manufacturer in the UK, for that matter).

The UK's vital interests

Britain's vital interests are that goods and flow freely into the country. Enemy opponents in two world wars were trying to block that flow, with battleships, submarines, mines, etc. North Korea is a potential enemy, which is why the country is under sanctions which prevent the sale of goods TO that country.

As far as I know, there has never been any threat from the EU to refuse to supply the UK with goods, post Brexit, whether it be ball bearings from Sweden, cars and washing machines from Germany, bacon from Denmark or tomatoes from Spain.

So as long as the UK government does nothing silly like imposing retaliatory tariffs, there is no problem on that score. On the contrary, leaving the EU means being free of the burden of tariffs which restrict the flow of goods into the UK and add to their cost.

At the same time, consumers and business inside the EU are faced with the same restrictions on importing goods from the UK as they already have when importing from the rest of the world. That is a burden we are well rid of.

onsdag 25 oktober 2017

Topsy-turvy view of trade

Trade takes place because goods are worth more to the buyer than to the seller. Everyone's idea of a good deal is that one buys things that satisfy their wants and are good value for money. A brand new car at a 20% discount is a good deal, in normal usage.

But in this whole debate over Brexit, the idea of a good deal has been turned inside-out. The "good deal" is that people in the UK are allowed to sell UK produce to people in the EU. It is as if people in the EU were not really buying British goods because they wanted them, but as a favour or act of charity.

The reality is that keeping out British goods is depriving EU people of the opportunity to purchase them. It is exactly the same as if the UK imposed sanctions on the EU and refused to sell its goods. In normal situations sanctions are imposed against a country as a punishment. In this case the EU is imposing the punishment on itself, not particularly because there is any desire to punish the UK but because that is the way the Single Market trade rules operate.

Why are so few people able to see this? Is it because it is too obvious?

The death of civilised debate

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