POST-BREXIT TRADE POLICY

According to the Office for Budget Responsibility (OBR), public sector net borrowing was £56.1billion in the year 2019/20. It is forecast to reach £393.5billion in 2020/21, and then to be £164.2billion (2021/22), £104.6billion (2022/23), £100.4billion (2023/24), £99.6billion (2024/25), and £101.8billion (2025/26) in the OBR central fiscal forecast – ie it is forecast to stabilise at around £100billion per annum based on the OBR’s assumptions (Office for Budget Responsibility, Economic and Fiscal Outlook, November 2020, Table 1.3).

According to this OBR forecast, the government will need to continue to borrow large sums into the future, with no prospect of a change. There are those who attribute this economic calamity to Brexit. In a recent article in The Guardian, Polly Toynbee wrote:

‘Ignore the blustering brinkmanship: there will be a deal between Britain and the EU. This week, next week or in the final second before the clock strikes 12, this Brexit-crazed government will sign on the line. It needs no crystal ball to foresee a deal. Though this government is disgraceful and dishonest, it is not certifiably insane. It will not kill off the car industry, manufacturing, farming, finance and fishing. It will not cut off security and police relations with Europe. Nor will it want a hard border in Ireland, breaking the Good Friday agreement. And nor will it freeze friendship with the new US president, nor leave relations with our nearest neighbours and traders irreparably rancorous.’

And:

‘A deal was always inevitable because the rules laid out by Margaret Thatcher’s single market are crystal clear: the more you want to trade with the market, the more you must conform to it. Johnson will attempt whoops of Waterloo triumph as he tries to smear lipstick on his pig of a deal. The EU will politely suck lemons, though Emmanuel Macron may spit back.

Here’s the verdict from the Office for Budget Responsibility (OBR) on the deal, hidden in annexes and unearthed by Jill Rutter for UK in a Changing Europe. The deal will cause a 4% drop in GDP. Even the pandemic won’t hide the Brexit hit to manufacturing and finance, as mountainous red tape includes 270m customs declarations (as opposed to 55m now) and 50,000 new customs agents. New customs IT will only go live on 23 December; road hauliers have no handbooks; lorry parks are unfinished. No wonder the chancellor, Rishi Sunak, was silent on Brexit in his spending review last week. All ministers have been forced to look over the no-deal abyss. That’s why they know they face the worst of all worlds: they will eat their words and betray fellow Brexiters, yet still carpet-bomb the country’s economy.’

More recently, the former prime minister Gordon Brown popped up on Sky News, and said:

‘If there is no deal now, I see huge international implications from what he fails to deliver, because we would be in an economic war with Europe that would cost us very dearly. Food, drugs and everything else we would find it difficult to get into the country without tariffs and without hold-ups. But we’d also be in an economic war with America because there’d be no chance of a trade treaty with America. And so, Boris Johnson is going to end up as the most isolated prime minister in peacetime history, with no friends around the world, because he has simply chosen a path of confrontation, when everybody knows that it’s in Britain’s economic interest – maybe not in the Brexiteers’ ideological interest, but in Britain’s economic interest – to get a deal and to get a deal now.’

More sensibly, Brown continued:

‘One of the problems we have got is the difference between a no-deal and a deal is becoming quite slim. It looks as if what’s going to happen is they’re going to say “Yes we’ll have tariff-free trade, we’ll have quota-free trade, but the minute you breach the level playing field, we are reserving the right to impose tariffs and impose sanctions upon you.” So you may have an unstable relationship over the next few months or indeed over the next few years, because all they can get to in this negotiation is a minimalist deal, which leaves people very uncertain about the path of the economy.’

Brown is correct to point out that if any deal is subject to the EU imposing tariffs and lightening speed when they object to something, then that deal is not worth much. Brown is verging on the hysterical to talk of ‘economic war’, not only with the EU but also with the USA! What Brown, and others such as Toynbee want is preferably for the UK to stay in the EU, or at least to agree to be a vassal state subservient to EU rule. Above all, such people are hostile to any concept of the UK being a successful independent country. They are globalists.

In Turbo Brexit: and the case against Brino, I wrote (italics added):

‘Independence will be taken as consisting of three aspects. First, sovereignty and the ability of government to take decisions; equally important is their willingness to do so. A government might be sovereign, but if it continually defers decisions it should take to outside entities then that sovereignty becomes diluted or even worthless. Power is not the same as sovereignty, and the ability to implement a decision should be taken into consideration in the exercise of sovereignty.

Second, is military power and security. Is a sovereign, independent nation able to defend itself and its borders? Does it have the military capability to project forces to support foreign policy objectives? Naturally, a puny military power will have less influence than a strong one.

Third, is the economy. Can the sovereign, independent nation pay its way? Can the government pay its bills and honour its obligations to its people? Currently, the British government cannot and successive governments have been dishonouring commitments to the public for a considerable time (the erosion of the state pension and social care being obvious examples). Can a country trade successfully and export sufficient goods and services to pay for imports? Currently, Britain cannot. Change is therefore necessary and this is an important reason for Turbo Brexit. Britain cannot afford to blunder on indefinitely as it is, as a member of the EU.’

The UK is set to become a sovereign country again on the 1 January 2021. There are repeated attempts ongoing to dilute if not prevent that. The issue of sovereignty was number 2 of the Turbo Brexit agenda: ‘There should be a full restoration of British sovereignty. Neither the EU nor any other international organization, should have any power over Britain’s internal affairs. Britain’s laws should be determined by Britain’s parliament. Britain should withdraw from the jurisdiction of the European Court of Human Rights and repeal the so-called Human Rights Act.’

The criticism from Toynbee and Brown above relate to trade. That issue was number 6 of the Turbo Brexit agenda: ‘Britain’s trade policy should be one of balanced trade. Britain has a massive balance of trade deficit with the EU and also with China. Britain needs to adopt trade policies that will eliminate these trade deficits. If necessary, tariffs should be used. In addition, there should be measures to prevent further key British firms being taken over by foreign entities. Other countries protect their key industries and so should Britain.’

In The Ponzi Class: Ponzi Economics, Globalization and Class Oppression in the 21^st Century, I wrote:

‘Britain has been very relaxed about allowing foreign takeovers of British firms. In part this is seen as globalization and in part is because it is government policy to hawk British assets in order to pay for imports rather than paying for them by relying on exports. In the 1950s and 1960s, capital controls meant that it was difficult for foreign firms to take over British ones. Nigel Lawson emphasized the importance of the removal of capital controls and that “one of the consequences is that companies get taken over”. Will Hutton [a Keynesian economist] wrote:

“No other economy is as open as ours with takeovers so easy. And, apart from the US, no other economy needs the inflow of overseas cash so acutely. Britain’s industrial and financial jewels are being auctioned to pay for a record trade deficit … with no end to the deficit in sight, the auction will go on until the cupboard is bare.”

Between 1997 and 2007, foreign ownership of quoted British companies rose from 30% to 50% according to the Treasury. In the 10 years to 2015 British companies worth £440billion were sold to foreigners. 72% of City trading is done by hedge funds, high-frequency traders, or investment banks trading on their own account. In 1991, 50% of British shares were held long-term by British pension funds and insurance companies; by 2015 that figure had fallen to less than 15%, with 41% of British shares held overseas. Figures from HM Revenue and Customs show that those sectors most affected by takeovers are paying either lower or broadly the same tax revenues – and thus a declining share of the overall total. The takeover culture is reducing tax revenues and so is impacting on government services and forcing up taxes from other sources such as VAT, personal tax and national insurance. For example, Boots transferred its headquarters to Zug in Switzerland to dodge British taxes.’

In Turbo Brexit, I warned:

‘That the EU is likely to take protectionist measures against Britain after Brexit is not idle speculation – this is in addition to the unfair advantages that the northern EU countries have due to, for them, the undervalued euro. The continental European countries have never shared Britain’s attachment to free trade and have been willing to protect their industries. Britain might grandstand that its contract for passports was awarded to a foreign firm, but France, Germany and others do not. Other EU countries do not drive foreign cars to anything like the same extent that the British do. The EU has been eyeing up Britain’s financial services and has already started shutting out British firms from contracts. For example, the EU has stated Britain will be excluded from the Galileo and Copernicus satellite projects, with British firms being barred from even bidding for contracts, even though Britain has expressed a desire to remain involved and despite Britain spending around £1billion on Galileo. This is a foretaste of coming attractions.

In the summer of 2018, President Trump had come in for criticism for allegedly starting a trade war with a variety of countries that were enjoying trade surpluses with the USA. Trump had imposed tariffs to protect American steel and aluminium producers, which he said were strategic industries, and also targeted China in particular, accusing it of using unfair trade practices. Trump was undeterred by the criticism, even tweeting:

“Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that — and everybody’s talking! Remember, we are the ‘piggy bank’ that’s being robbed. All will be Great!”

Trump was dismissive of his opponents:

“Every time I see a weak politician asking to stop Trade talks or the use of Tariffs to counter unfair Tariffs, I wonder, what can they be thinking? Are we just going to continue and let our farmers and country get ripped off? Lost $817 Billion on Trade last year. No weakness!”

Regarding China and car imports, Trump tweeted:

“If the U.S. sells a car into China, there is a tax of 25%. If China sells a car into the U.S., there is a tax of 2%. Does anybody think that is FAIR? The days of the U.S. being ripped-off by other nations is OVER!”

The point being that President Trump was using tariffs to tackle the problem with the USA’s trade deficit, something which Congress had in the past wanted itself and had been thwarted by the then President Obama (see The Ponzi Class, page 249).

Far from being an economic disaster, as those in Britain would have everyone believe that tariffs would cause, the USA is booming. The USA’s growth reached a rate of 4.2 per cent in the second quarter of 2018, and wages were increasing. By comparison, Britain’s growth is an anaemic one per cent to 1.5 per cent and is forecast to remain so. Since 2007, the year before the financial crash up to the end of 2017, Britain’s GDP had increased by only 11 per cent. This was achieved by expanding the total of those in working by 8.7 per cent, pumping £435billion of printed money into the economy (Quantitative Easing) and hence transferring the wealth of private pensions to the bankers, falling living standards, and an increase in household debt. In July 2018, figures from the ONS showed that households took out £80billion in loans in the previous year, while only £37billion was saved in bank accounts. Households were spending more than they earned for the first time in 30 years. The excess spending amounted to £25billion. The poorest families spent around two-and-a-half times their disposable income. This is Ponzi growth and it is a fraud. Without this increase in debt-funded consumer spending, Britain would have been in recession.

Once again, to highlight the scale of the crisis bearing down on Britain, one should consider that Trump complained that the USA’s deficit with the EU in 2016 was $147billion whereas Britain’s trade deficit is around £100billion (NB £ not $). But the USA’s economy is around 7.4-times as large. Whereas Trump is out to end the US trade deficit, Britain, despite the opportunity offered by Brexit, has no such policy and has not even complained about the size of its deficit with the EU or about the euro being a cause of it. Britain’s intention is simply to plough on regardless.’

The Tories prefer to believe that a trade deficit is self-correcting. Put simply, the theory that a deficit is self-correcting does not work. This is not an opinion. The UK has been running a trade deficit since 1983. The problem has been made worse by the EU’s adoption of the euro as a replacement for national currencies. The euro’s value reflects both the weaker economies of Southern Europe, such as Greece, and the stronger economies, such as Germany. This means that it is too high for the weaker economies, and hence they are in economic difficulty, while the stronger economies, in particular Germany, enjoy an artificially low exchange rate. UK exports to Germany, for example, are therefore artificially highly priced, while imports from Germany are artificially cheap. In addition, there is UK’s poor productivity, of which, in a rare glimpse of reality from the May Government, in November 2016, Philip Hammond pointed out:

‘We lag behind the US and Germany by some 30 percentage points. But we also lag France by over 20 and Italy by 8. Which means in the real world, it takes a German worker four days to produce what we make in five, which means, in turn, that too many British workers work longer hours for lower pay than their counterparts. That has to change if we are to build an economy that works for everyone. Raising productivity is essential for the high-wage, high-skill economy that will deliver higher living standards for working people.’

Treasury documents showed that raising productivity by 1% per year would increase GDP by £240billion in ten years – equivalent to £9,000 for every household.

Applying tariffs to EU goods is one way of eliminating the trade deficit. No doubt the EU would do likewise, but the tariffs would be imposed at a level that would result in the trade being brought into balance and so the UK would experience an increase in demand for goods of £100billion (either through more exports or, more likely, through British consumers buying British goods rather than imports).

The increase in demand for British goods would trigger the multiplier effect. The multiplier effect is very important, and was a concept perfected by Keynes (although he was not alone in developing an understanding of it). Put simply, Keynes believed that, in certain circumstances (please note), the government could create jobs by increasing expenditure. This increase, in turn, would lead to a further increase as people spent the money they had earned. Keynes believed that the multiplier was 2. In which case, an increase in government spending of £100billion would result a total increase in expenditure of £200billion.

Likewise, to bring the UK’s trade with the EU into balance would also trigger the multiplier effect. This would lead to a booming economy, an increase in jobs and wages, and an increase in tax revenues. Given that around 34.3 per cent of GDP is taken in taxes, then a £200billion increase in output (including the multiplier effect) would increase tax revenues by around £68.6billion with the substantial revenues from the tariffs on all EU goods in addition. Then there is the trade deficit with China.

By bringing the UK’s trade with both the EU and China into balance, the UK government could potentially pocket well in excess of an extra £100billion or so in taxes – by tackling the harm caused by the trade deficit rather than by increasing tax rates on the general public.

The £100billion ongoing public sector borrowing forecast by the OBR can be totally eliminated by tackling the UK’s trade deficit with the EU. This would not involve bits and bobs of increases in taxation here and there, accompanied by skinflinting and underfunding public services – being the preferred option of the Government.

The Remainers, quislings and doomsters should be ignored. Britain’s trade policy should be one of balanced trade with the EU, and a proactive policy of tariff reform is one way to achieve that objective. Furthermore, if the UK is to remedy its low productivity problem, then it needs to be able to implement policies necessary to do so and should not be hamstrung by EU rules in the name of a ‘level playing field’. No deal is the only option.