Thread by @WanderinTeacake

1/ Explainer on tariffs for a snowy Friday, you lucky people.

2/ Right. Tariffs are extra charges a country chooses to add on to goods that are imported from elsewhere. They are used as a means to control the flow of those goods. Lower your tariffs, and imports become cheaper. Raise them, and you make it more expensive to import.

3/ So tariffs are a lever a country can use to control trade. If you want to protect domestic producers in your country, you can raise tariffs. If you want to open up your market to competitors, you lower them.

4/ The first thing to bear in mind is that tariffs as a concept aren't good or bad in themselves, they just are. Whether a particular tariff is good or bad in your view will depend on who you are and what you're trying to do.

5/ Not all people in the UK will have the same needs. If your company makes and sells lamb mince products, then a low tariff on lamb imports will help you, because you can get your ingredients more cheaply.

6/ But if you are a sheep farmer in the UK, low import tariffs could put you out of business if you can't compete with those lower prices.

7/ The second thing to bear in mind is that the cost of tariffs are ultimately passed on to the customer buying the product being imported, in the form of higher prices.

8/ When Donald Trump crows about making China pay with the higher tariffs he slaps on Chinese commodities, remember the people actually paying in the end are US consumers.

9/ In a traditional view, whether you think what tariffs try to achieve is generally a good or bad thing comes down to whether your views are free-market or protectionist.

10/ If you're a free-marketer, you don't mind where a product is made. If you can buy widgets cheaply from China or Croatia, why shouldn't you? You want import tariffs to be low. If UK widget makers can compete, fine, but otherwise you don't mind where widgets come from.

11/ If you're a protectionist, you think your own country's companies should have first dibs, and should be protected from being put out of business by overseas competition.

12/ Most people are probably a bit of both, not necessarily dispassionately. We feel a little queasy when we hear the contract for UK passports has gone to a non-UK firm, but at the same time we'll still buy Dyson vacuum cleaners made in Malaysia.

13/ Of course there's a problem here with Brexit. Brexit has been advertised as being both free-market and protectionist. Depending on speaker and audience, people have been promised that Brexit will a) remove all the tariffs and open up our markets or b) protect British industry

14/ Of course, it will be tricky to make it do both simultaneously, and that's one reason why Brexit is mired in arguments over what it is we want to achieve. But that's an aside, so back to the tariffs. And the problems with tariffs.

15/ Tariffs are fiendishly complex. There are thousands of them listed by the WTO, for all sorts of different products. There are loads just for different types of biscuits, depending on how they are made, what they contain, whether there is chocolate in or on them, and so on.

16/ In trade deals, countries thrash out variable quotas for these tariffs. You might import the first 1000 tonnes of jaffa cakes at one tariff, and then it goes onto a different rate. This is one reason why separating the UK's tariff quotas from the EU's has resulted in disputes

17/ It gets worse. When you look at how products are now made, crossing and re-crossing borders several times throughout the manufacturing process, remember that at every stage those ingredients may be subject to a different tariff.

18/ Wheat may cross a border, and be milled into flour, then recross the border and be mixed with milk and other ingredients, which themselves have crossed the border, and be made into cakes. Which then go back across the border to be sold.

19/ That's just cakes. What about cars? Or planes? These have thousands of parts, or whole assemblies of parts, all doing this dance.

20/ I could digress into rules-of-origin here, but that's a whole thread of its own.

21/ So there are good reasons to want to get rid of tariffs and simplify trade, if we could do what they set out to achieve a different way.

22/ But first, why can't EU members set their own tariffs individually? Why do tariffs have to be applied EU-wide?

Because if a country could set its own tariffs it could steal everyone else's trade.

23/ Say the EU's tariff on widgets is 40%. If the UK could choose to set its tariff at 0%, it could import widgets, bung 10% profit on them, and still sell them across the EU cheaper than anyone else. It would put every other widget maker and seller out of business.

24/ For the moment, though they're not the biggest barrier to trade, tariffs remain a big bargaining chip in trade deals. Traditionally, a lot of what trade deals did was work at reducing or removing them.

25/ The EU has gone further than any other trading bloc in history in removing tariffs between members.

26/ It's often forgotten that the EU also reduces or removes tariffs for a lot of imports into the EU too, in useful ways. The Everything But Arms initiative, for example, en.wikipedia.org/wiki/Everythin… removes all duties and quotas for the least-developed nations.

27/ The claim we can reduce shop prices for consumers in the UK by leaving the EU and then removing tariffs is pretty tenuous, because in a lot of cases those tariffs are already at or close to zero.

28/ Anyway. Back to tariffs in general. Outside a trade deal, there's significant restrictions in the WTO rules on what you're allowed to do with your tariffs.

29/ The "Most Favoured Nation" (MFN) rule means if you reduce a tariff on a product for one country, you have to reduce it for everyone else too. So if you think we could replace the Single Market with a system of targetted zero tariffs, this is one reason why it would be tricky.

30/ And you can't get around the MFN restriction by inking a quick "trade deal" to give one favoured country a zero tariff on just the goods you want to open up, as some Brexiters have suggested we should do just with products the UK doesn't produce itself.

31/ Those rules mean any trade deal has to be "bilateral" - giving and taking in both directions - and cover "substantially all the trade" not just sectoral deals like the UK was trying for at the outset of negotiations with the EU.

32/ You can't raise tariffs beyond the WTO-set amount, you can only reduce them, and as we have seen when you do it off your own bat you have to do it for everybody.

33/ One thing countries can do is slap on punitive tariffs as a form of "trade defence." If you think another country is treating you unfairly - an example recently would be China flooding the market with cheap steel to put everone else out of business - you can slap a tariff on.

34/ This can escalate, with additional tariffs on other products not connected to the original dispute, and then you have a trade war. There's one been going on recently, mainly between the US and China, but the UK has been dragged in.

35/ It's worth observing here that the EU has been vigorously fighting the UK's corner in this dispute, despite our imminent departure, and the US takes a lot more notice of the potential damage to their access in a market of 550m relatively affluent consumers than the UK alone.

36/ The biggest problem with tariffs, to my mind, is that they're a pretty blunt instrument, and so not very good at achieving the goals they are intended for. They are a trade lever, but not a very good one. I'll explain.

37/ I think the main aim of all tariffs should be to enforce fair competition. Unless you're quite far out on either end of the freemarket/protectionist spectrum, you want to be able to buy a range of imported goods, but you also want UK business to be able to compete fairly.

38/ You want a level playing field. If a company in China or Croatia can employ workers more cheaply, the environmental rules are more lax, or their workers' rights are non-existent, they can make their widgets more cheaply than a UK company that has to follow stricter rules.

39/ A tariff can weight the scales to make a UK company competitive again against that sort of undercutting, but wouldn't it be better if we could just make sure that overseas companies can't undercut us by exploiting weaker rules or cheaper workers?

40/ That would be better pretty much all round - for workers, who have better conditions and pay, for business, which doesn't have to worry about unfair competition. For the consumer, who has better protections, for the environment.

41/ An international solution that creates a level playing field for fair competition.

Somebody should create that...

42/ Now, while tariffs aren't perfect, they remain important, and as discussed they are still a key bargaining chip in trade deals.

43/ So if somebody suggests we just axe all our import tariffs to make goods cheaper, remember that - where it works at all - this pretty much kills the prospect of any decent trade deals with other countries. We've already given them tariff-free access for free.

44/ Which leads to the observation that - for me - tariffs are interesting (did I actually just say that?) not because of what they are, but because of what they reveal about the person discussing them. Partly because tariffs are far from the most significant barrier to trade.

45/ So if somebody boasts about all the wonderful new trade deals the UK will make, and only frames it in terms of tariffs, you know they don't really understand trade deals.

46/ And if somebody pops up to say we can simply replace the Single Market and Customs Union with a tariff-free trade deal, that person is a charlatan.

47/ And if somebody pops up to suggest getting rid of all tariffs to make the UK prosperous, that person is an idiot.

48/ And if somebody decries the EU's protectionism and their exploitation of poor African coffee producers through high tariffs, that person is bullshitting you.

49/ The truth is both simpler and far more complex. Like the EU.

One more point:

50/ The EU is able to dispense with tariffs because it has replaced them with something far more effective: the Single Market. We've lost sight of this, and tell ourselves that removal of tariffs is all we need to do to make trade work. We forget at our peril.