Brexit- Rorschach’s Strategy

A popular argument on “why Brexit wont be so bad, really” goes thus : the UK runs a trade deficit with most EU countries, so it is in their interests to do whatever is needed to keep trading with us.

Its curious, this turning of what is a weakness- the UK not making stuff that it can, much, sell to foreigners, into a strength. Its Rorschach’s strategy in Watchmen. He dies, in the end.

So, what do the trade data tell us.

uktrade

they suggest that this argument is mostly bunk, but whats new in Brexit-land?

The UK runs a massive trade deficit. It runs a services surplus but not enough to offset. The UK imports stuff. The Brexit argument goes ” Heinz and Laurent  would want to sell stuff to us, wot wot, so he wont cut up rough as we walk out the door”

Well, maybe.  The issue is also – will George and Peppa be able to source elsewhere at a comparable price the stuff they get from the EU. Will it do the job the same as the existing ? Look at the massive amount of capital goods imported – this is stuff like precision machinery and factory equipment. There is a reason Germany and France and the Netherlands sell so much of this stuff- they are bloody good at it. Look at transport – thats Beemers, Porches, and Mercs. Will the brexiteers happily swap their 353’s and E220s for lexuses and Chryslers? The assumption seems to be that the consumer or producer seeking materials and goods, that they are infinitely flexible and can switch swiftly and easily.

A more plausible scenario is this : post Brexit, if the UK finds itself outside the EEA (as has been foretold) and in a free trade situation, they will face tariffs on their exports and will have to decide if they wish to have tariffs on imports. Doing so will possibly hurt the exporters – but 90-95% of  French/German/ Dutch exports go to places other than the UK. So it is much easier for them to switch marketing to make up for the small loss of exports to the UK contingent on tariffs than it is for the UK consumer to switch from long habits or embedded capital. Of course, the UK could decide not to impose tariffs, and allow totally free trade, but that is unlikely to be the case. So UK consumers are the junior partner here. And junior partners have low power.

All data here are from the world bank trade database http://wits.worldbank.org/

 

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