fredag 10 november 2017

Irish border headache

One of the disputes that has bubbled up over Brexit is what to do about the border between Northern Ireland and the Republic.

It seems that the UK government has not a clue about what to do over import tariffs. WTO rules mean that it will be difficult to do the really stupid thing and impose them, even if it wants to. The chlorinated chicken will be on the shelves and if people don't want, that is where it will stay until it is sold off as cat food. That means in turn that the Republic would have no problems with getting imports across Great Britain.

It also means that that since the UK government is not proposing retaliatory tariffs so there is no reason why farm produce from the Republic should not enter the UK as now. What would be the point of making people pay more for their Kerrygold?

All the obstructionism is on the EU side as the single market rules kick in. This will cause the same trouble as is already experienced in places close to the EU's eastern border, on both sides; at Kaliningrad, Narva, Daugavpils, Bialystock, Vyborg, Pskov, Minsk, Lviv, etc.

From this point of view, a sensible option for the Republic would be to join Britain in leaving. The Republic's trade is not particularly focussed on the rest of the EU - its exports consist substantially of high value products like pharmaceuticals, which can be sent as air freight.

Fear of what would happen is largely based on a warped view of what the economy is for. Behind nearly all the comments on both sides of the debate is an assumption that the purpose of the economy is to keep people busy, that work is a good thing and as much of it as possible should be created.

We all know from personal experience that the economy exists to provide our wants and needs, whilst doing as little work as possible. There is a disconnection somewhere.  From this follows the received view is that exports are good, that imports are bad, that countries must have balance of payments surpluses and that the economy is a supply-push system.

Thus, on this view, access to markets is a privilege to be negotiated for. All of this is to forget that the worst punishment one country can inflict on another is to prevent imports from getting into that country, by sanctions, blockades and other hostile actions. If the received view were correct, North Korea would be among the world's most flourishing economies.

The reality is that the economy is driven by demand. Smuggling is an indicator of repressed demand. The idea of negotiating "trade deals" is based on a bluff. If the UK government puts a blockage on the import of Kerrygold and all the other Irish dairy produce that fills the shelves of Britain's supermarkets, the public and the trade will start to kick up a fuss.

What would be the effect of unilateral free trade? Sterling deposits would build up in the supplier countries. The value of sterling would drop, making UK goods relatively more attractive, at which point the demand for the UK goods would start to creep up again. If it did not, due to import tariffs, the supplier countries would experience a dwindling demand for their products from UK customers as the value of sterling continued to drop and imports were replaced by home-produced goods. Sooner or later the bluff would be called. The whole silly edifice then starts to fall apart as it is seen for what it is.

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