We don’t need a trade deal with the EU – WTO rules will suit us just fine The first part of the video is fine. It is true that absent other action, the UK will trade essentially under WTO rule or other preexisting trade agreements. The video then goes astray. The UK does not need a trade deal with any other country to maximize the value of trade. All it needs to do is allow any person, wherever situated to export any legal thing to the UK without facing tariffs or taxes for import. That's it; nothing more needs to be done. More below. The problem is there remains an embedded foreign body of mercantilist thinking which confuses us all about how trade works and who gets the value of trade. When it comes to trade, imports are a value to the nation and exports are negative. The entire point of manufacturing is to produce items we want to, or need to, consume. Since we cannot consume articles exported, we've lost that value. However, imports are new items which we can consume sent from others; this is a value. Nations increase the value to their consumers when they import, and decrease that value when they export.
I suspect that is difficult to understand, but we know this intuitively. Would you instead give up exports (your labor which is sold to your employer) or would you rather give up imports of goods (purchasing things at stores)? Most people realize they work to obtain money, so they do not have to make or produce every last thing they need or desire. The standard of living for the self-sufficient is abysmally low, as it is for North Koreans, and was for American farmers in the 16th century. We export labor only to so we can import products, it is the import which is valuable, the export would stop if we could not obtain the imports. This is the same with countries; imports are the value, exports the cost necessary. Do not focus on the exports or the money. The trick to understanding magic is to keep your eye on what is essential, not what is not. Here the exports and the money are not key. Imports should be tariff-free and tax-free. The goal of the nation is to improve the lives of the people/consumers. This is the easiest and surest way to do that. The money is the next big problem to understand. Yes, exports bring in money, but as we've seen, one cannot eat money, or use cash except to convert it into a useful product through a transaction. Money is the MacGuffin necessary to move the economy as efficiently as possible but is otherwise valueless. Don't believe me? Read Cormac McCarthy's The Road, then tell me how much value there is in cash, or gold or any other avatar for value. The problem with money is for the country receiving it not for the nation sending it (this analysis is wrong, countries do not trade, only individuals trade, but here let's use countries just because it makes the investigation less kludgy and long-winded). Also, the US is unique since we hold the world's currency and most international transactions are in US Dollars this applies to the US less often. But when a trade occurs the seller now has a foreign currency which is valueless in the seller nation. The only place that money has value is in the buying nation. This means that the seller will somehow need to repatriate that currency to the buyer nation to receive value. Repatriation can mean buying an export from buyer nation, or it can suggest investing in the buyer nation, usually by buying an asset like a stock, business, bond, real estate, or something else. This is called the "balance of investments" which is the other half of the "balance of trade." Imports and Investment The problem politicians have is they view the balance of trade as a complete balance sheet. It does look that was since there is a positive side and negative side, but it is only one-half the equation. The other is to marry the balance of trade and the balance of investment when we do we see that the money we spend on imports is always nearly equal to the investment we receive. The money goes out to buy a container ship full of products, and shortly after that, it comes back as investment in the US. Why we would want to stop the investments in the US which allow us to continue to improve our manufacturing, engineer new devices, create new products, ideas, drugs and myriad other things is beyond me. But Trump and the mercantilist want this very much. Trump seems to be a naif, he is not a corrupt politician and so cannot be after the graft and corruption that so drives the political class to pursue mercantilist policies. In the end, a careful accounting of the balance of payments including imports, exports, investments, services, ect., establishes the Balance of Payments is always zero. "Trade is perfectly balanced once we account for purchases of merchandise, services, and assets. We buy more goods from foreigners than they buy from us (current account deficit). Foreigners buy more of our assets than we buy of theirs (capital account surplus). Once you account for the deficit on the current account and the surplus on the capital account, our trade with the rest of the world is balanced, and the Balance of Payments = 0." Wilbur versus reason (Mark Perry from the comments) The real choice is, do we try to make it precisely zero with each trading partner? That seems incredibly stupid; you would never try such an idiotic Triple Lindy because there is no value in it. When was the last time you ran a perfect balance of payments with your Grocer? How about with your laundry/dry cleaner, auto mechanic, gas station, employer or any other person or entity? Never is the only reasonable answer. We don't even run a balanced balance of payments with our friends about dinners parties or who pays for dinners out (ok, some women are insanely obsessive about the meals out so maybe there). In pretty much every one of these examples the balance of trade is 100% to 0% one way or the other. The world does not collapse, Mon Dieu? How can that be? The balance is on the whole not on each part. Trump and the mercantilists all believe the balance must be on the parts. Idiots. Back to the video. The producer does not understand that the best thing the UK can do, regardless of what any or all other countries do, is to allow anyone to import free of tariff or tax. This would kickstart a massive economic boom in the UK. If it were combined with a corporate tax rate of zero, there would be a mad dash by a large number of corporations to relocate to the UK. The WTO rules may allow the UK "time, " but it does not need time, it only needs to produce legislation which eliminates all tariffs and taxes on imports. This document should be a few sentences at most. The UK should then demand other nations comply. But lack of compliance will only hurt the exporting countries who do not follow the UK lead. To negatively economically affect these nations the UK could impose tariffs on exports to these nations, but in a big world like ours, this would be a minor issue in the main. Mercantilist are legion even though their beliefs were proved false more than 200 years ago. Stop already!!!
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