Sunday, 5 February 2017

Have I Become a Toe Jam Brexiteer?

Overheard watching the England v France 6 Nations match:

Chairman (having heard repeated reference to toe jam): "So what's this toe jam business?"

No.2 Son: "Toe jam?"

Chairman: "Well, obviously I know what toe jam is, but what's the reference to rugby? Is it a new manoeuvre? Kept hearing it during the match."

No.2 Son: "Do you mean Itoje, the England player?"

Chairman: "Do I?"

Hay: "It's the name of a player, you daft bugger."

Chairman: "Sounded like Toe Jam to me."

Why wasn't Dallaglio playing, or Guscott, or Wilkinson, or Austin Healey? Can't recognise any of these whippersnappers.

I think I may have become a Brexiteer, but not through any argument I've heard put forward by the Brexit camp or even the government. I'm more than willing to change my stance, providing it's based on logic and not just wild speculation, wishful thinking, not taking into account our low productivity or unions, ignoring the fact we lost the Empire or the facile non-strategy of saying; "Let's all pull together and hope for the best."

It's not based on the traditional Brexiteer fallacy of 'because we buy more from them, then they need us more than we need them', which, if you have any basic understand of percentages and their effects, is just laughable and shows them up as pitchfork wielding rustics without the benefit of a GCSE in maths. Nor is it based on deceitful miracles suggesting we live on a golden highway to Utopia, rather than the UK - with all its warts.

Let's take a look at some figures:

Cost of EU membership = £8.5bn
Exports to the EU           = £220bn

That means an effective export tariff of 3.86%; however, that's currently paid by the government (i.e. by you and me in taxes) and not directly by the exporter.

The WTO tariff on our current level of exports to the EU (weighted by segment) would be 2.4%, which is lower that 3.86% currently being paid indirectly; however, that will shift from taxation to the export supply chain, making exports more expensive for the buyer and putting the UK exporter at a competitive disadvantage in Europe.

But, when looking at the import side, imports account for £510bn and will attract a (once again weighted) tariff of 2.53%, resulting in a gain to government coffers of £12.9bn. If that were used to subsidise the WTO export tariffs, then there could be an overall benefit from exports staying the same price, while imports would become more expensive and less competitive, thus boosting domestic consumption and helping the balance of payments. Subsidies under WTO are accepted, but can be actionable, meaning countermeasures could be taken; however, there are ways of manipulating subsidies via loans and all manner of skulduggery (fiddling with VAT, perhaps).

The beauty of this is that exporters wouldn't need to find other markets to replace lost business with the EU, which is easier said than done, although the majority of Brexiteers seem ignorant of this. Also, there will still be enough left over from the import dues to perhaps give substantial tax breaks to start-ups, thus encouraging innovation and investment, rather than focusing solely on tax breaks for mega corporations.

It all boils down to what else we get for the £8.5bn and whether the loss of that outweighs the potential economic advantage outlined above (e.g. holding the government to environmental regulation, etc.). Undoubtedly there would be an increased drag on trade due to the customs barriers. It might not be as simple as outlined - akin to me believing wine being part of my 5 a day as it's made from grapes. Certainly we could regulate the free movement issue that seems to be the sole concern of Brexiteers.

The old Adam Smith dictum of unrestricted free trade is no longer a fixed paradigm (for the benefit of the average Brexiteer, he plays for Wolverhampton Wanderers) and, if your balance of payments is shot to hell and gone (as ours is), careful use of tariffs can be a way of getting things back into kilter, providing there's a strategy for export growth. You can't simply keep buying from abroad and not sell anything near that amount back to Johnny Foreigner yourself - that applies whether we're in or we're out of the EU.

Of course, the above strategy works only because of the huge deficit with our largest trading partner. Once (and if) that disappears, a new strategy will have to be formulated.

Please feel free to criticise the above while I'm away (flying to Greece tomorrow for the week). Given I've not heard this put forward by Brexiteers makes me suspicious that there's a flaw in the logic and I'm talking out of my backside (I'm no expert...). Subsidies are frowned upon (especially agricultural subsidies) due to them encouraging inefficiency, yet that doesn't seem to stop other nations effecting them - the CAP, for example, and Chinese subsidies on steel, and China has been a member of the WTO since 2001.

Then the other issue to consider is whether the government would implement such a plan, even if feasible, or just bumble along without a clue. It's not an argument for leaving, but a way of making leaving possibly work without the devastating impact on trade, so I guess I'm still a Remoaner.

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