Bloke in suit

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?

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30 COMMENTS

  1. Donnelly needs to have his pension confiscated as a lesson.

    As he signed the Official Secrets Act–a bad idea for a CM EU-sucking sell-out who can’t keep his gob shut–I’m sure a little something could be found for him under the Official Secrets Act. Nothing too heavy. A nice arrest and then 1-2 years of “The Process is the Punishment” should do.

  2. The powerful export lobby includes a lot of home-grown workers who want to keep pulling that lever they’ve always pulled and their fathers pulled before them, as opposed to learning a second language and managing a department of foreigners making ten times more of the same stuff. Whereas lovers of imports are flinty people buying low-quality Chinese potato-peelers at Walmart, screw ’em. Barrier-free flow of foreign workers and foreign goods is seen as an act of war, notably by tariff-happy Trump, liberty is seen as a threat, and agreeing not to tax certain commerce is seen as a loss of sovereignty. So right now, carmakers hair-split over foreign-content rules to devise an amendment to the “Free Trade Agreement” (which never did need 1000 pages if it was what it said it was).

    It’s as dumb as getting Mexico to agree to pay for the wall, but it was part of the coalition that kept the Red Queen out of office. Government is not 180-degrees wrong; it is doing what it always does, pandering to voting blocs. Retail customers are not one and the importers whose stuff we buy don’t vote here.

  3. Even if one prioritises exports (please bear with me) we export more to non-EU countries than EU, and could improve on that were we able to do non EU trade deals.
    Our problems are that producers do all the lobbying, and that they prioritise keeping the markets they have over exploring new ones. Even when the extant markets are shrinking.

    • Why, yes! even if the EU embargoed all British exports post-Brexit, the products would still have value and some foreign country would deign to buy them. (And perhaps even re-sell to the hostages inside Europe, with a suitable price mark-up. Joke’s on them.)

  4. When I accidently stumble on a news programme I end up shouting: we don’t need any steenking trade deals! We don’t need anybody else’s permission to chose to not force our own people to pay artificially higher prices for foreign goods. It’s like some bizzare Mexican Standoff where we are saying “if you promise not to shoot yourself in the face, we’ll promise not to shoot ourself in the face”.

  5. Tim you are right of course in purely economic terms but unfortunately the quality of economic debate matches the quality of the whole brexit debate and is quite abysmal.

    Therefore make the points you do for a senior politician would be suicidal.

    Softlee softlee catchee monkee…

    That is the real brexit dilemma – truth has been so external to these debates for decades that now they don’t know what to do with it.

  6. I listened to Donnelly’s interview on Today this morning. He kept on referring to his predictions as ‘facts’; and was allowed to get away with it. Predictably, the interviewer didn’t ask him what his pre-referendum predictions had been; or how the real facts had played out.

  7. Free trade is great but that doesn’t mean unregulated trade. I was listening to a program about lead in paint and the damage it does to children, especially small children who like to suck it because the lead makes it taste sweet. They made the point that leaded paint is still used in a lot of Africa because it makes colours brighter.

    Seriously, do we want the country flooded with cheap children’s toys that use leader paint? Even if you’re a consequentialist you’ve got to admit that it would be political suicide for a politician to allow it to happen. As I’ve said before, any policy that even sniffs of allowing this, or anything similar, won’t survive first contact with mum’s net and the governement would be out on their ear.

    • There is a difference between free trade and mutual standards recognition; they are often linked – but only where that free trade is between similarly wealthy countries.

      Here in NZ, for example, we have free trade with Australia and we have mutual standards recognition (and a whole lot more, we have the right to move there, but not to claim benefits). If you can sell it in Oz then you can sell it here, and vice-versa. We also have free trade with China, but we don’t have mutual standards recognition with China; you can only sell it here if it meets our standards, and vice-versa.

      So lead paint has nothing to do with free trade agreements.

  8. Donnelly needs to have his pension confiscated as a lesson.

    As he signed the Official Secrets Act–a bad idea for a CM EU-sucking sell-out who can’t keep his gob shut–I’m sure a little something could be found for him under the Official Secrets Act. Nothing too heavy. A nice arrest and then 1-2 years of “The Process is the Punishment” should do.

  9. The powerful export lobby includes a lot of home-grown workers who want to keep pulling that lever they’ve always pulled and their fathers pulled before them, as opposed to learning a second language and managing a department of foreigners making ten times more of the same stuff. Whereas lovers of imports are flinty people buying low-quality Chinese potato-peelers at Walmart, screw ’em. Barrier-free flow of foreign workers and foreign goods is seen as an act of war, notably by tariff-happy Trump, liberty is seen as a threat, and agreeing not to tax certain commerce is seen as a loss of sovereignty. So right now, carmakers hair-split over foreign-content rules to devise an amendment to the “Free Trade Agreement” (which never did need 1000 pages if it was what it said it was).

    It’s as dumb as getting Mexico to agree to pay for the wall, but it was part of the coalition that kept the Red Queen out of office. Government is not 180-degrees wrong; it is doing what it always does, pandering to voting blocs. Retail customers are not one and the importers whose stuff we buy don’t vote here.

  10. Even if one prioritises exports (please bear with me) we export more to non-EU countries than EU, and could improve on that were we able to do non EU trade deals.
    Our problems are that producers do all the lobbying, and that they prioritise keeping the markets they have over exploring new ones. Even when the extant markets are shrinking.

    • Why, yes! even if the EU embargoed all British exports post-Brexit, the products would still have value and some foreign country would deign to buy them. (And perhaps even re-sell to the hostages inside Europe, with a suitable price mark-up. Joke’s on them.)

  11. When I accidently stumble on a news programme I end up shouting: we don’t need any steenking trade deals! We don’t need anybody else’s permission to chose to not force our own people to pay artificially higher prices for foreign goods. It’s like some bizzare Mexican Standoff where we are saying “if you promise not to shoot yourself in the face, we’ll promise not to shoot ourself in the face”.

  12. Tim you are right of course in purely economic terms but unfortunately the quality of economic debate matches the quality of the whole brexit debate and is quite abysmal.

    Therefore make the points you do for a senior politician would be suicidal.

    Softlee softlee catchee monkee…

    That is the real brexit dilemma – truth has been so external to these debates for decades that now they don’t know what to do with it.

  13. I listened to Donnelly’s interview on Today this morning. He kept on referring to his predictions as ‘facts’; and was allowed to get away with it. Predictably, the interviewer didn’t ask him what his pre-referendum predictions had been; or how the real facts had played out.

  14. Free trade is great but that doesn’t mean unregulated trade. I was listening to a program about lead in paint and the damage it does to children, especially small children who like to suck it because the lead makes it taste sweet. They made the point that leaded paint is still used in a lot of Africa because it makes colours brighter.

    Seriously, do we want the country flooded with cheap children’s toys that use leader paint? Even if you’re a consequentialist you’ve got to admit that it would be political suicide for a politician to allow it to happen. As I’ve said before, any policy that even sniffs of allowing this, or anything similar, won’t survive first contact with mum’s net and the governement would be out on their ear.

    • There is a difference between free trade and mutual standards recognition; they are often linked – but only where that free trade is between similarly wealthy countries.

      Here in NZ, for example, we have free trade with Australia and we have mutual standards recognition (and a whole lot more, we have the right to move there, but not to claim benefits). If you can sell it in Oz then you can sell it here, and vice-versa. We also have free trade with China, but we don’t have mutual standards recognition with China; you can only sell it here if it meets our standards, and vice-versa.

      So lead paint has nothing to do with free trade agreements.

  15. Okay, I am with you to a point, but if you are one of the millions of Brits whose income to buy all those lovely things depends in part on being able to sell your own products/services abroad, then you do really, really want very low or preferably zero tariffs to be imposed on your goods/services by other countries and not to face other non-tariff barriers. For the man or woman on the street who has to earn their living before they can buy what they want or need, your article does not seem to take that concern with sufficient importance. Or am I mistaken? If so, why?

  16. Am I the only one who considers that the only function of “trade deals” is actually to hamper trade?

    I also saw Donnelly’s TV performance… He’s a f*cking idiot if he seriously thinks that Brexit would cause a complete shut-down in trade with the EU – which appeared to be one of his main points – unchallenged, of course, by the BBC’s “interviewer”.

    • “Am I the only one who considers that the only function of “trade deals” is actually to hamper trade?”

      No, you are not alone. Politicians and MSM promote belief nobody can sell without a “Trade Deal”. Luckily, import/exporters no this is a lie.

      “Brexit would cause a complete shut-down in trade with the EU”

      On BBC Question Time there are audience members – including exporters – plus on panel promoting this lie every week.

  17. Okay, I am with you to a point, but if you are one of the millions of Brits whose income to buy all those lovely things depends in part on being able to sell your own products/services abroad, then you do really, really want very low or preferably zero tariffs to be imposed on your goods/services by other countries and not to face other non-tariff barriers. For the man or woman on the street who has to earn their living before they can buy what they want or need, your article does not seem to take that concern with sufficient importance. Or am I mistaken? If so, why?

  18. Am I the only one who considers that the only function of “trade deals” is actually to hamper trade?

    I also saw Donnelly’s TV performance… He’s a f*cking idiot if he seriously thinks that Brexit would cause a complete shut-down in trade with the EU – which appeared to be one of his main points – unchallenged, of course, by the BBC’s “interviewer”.

    • “Am I the only one who considers that the only function of “trade deals” is actually to hamper trade?”

      No, you are not alone. Politicians and MSM promote belief nobody can sell without a “Trade Deal”. Luckily, import/exporters no this is a lie.

      “Brexit would cause a complete shut-down in trade with the EU”

      On BBC Question Time there are audience members – including exporters – plus on panel promoting this lie every week.