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Picking up on the idea of the UK removing all tariffs after a no-deal Brexit on which I was briefly quoted on this morning's today programme - this would be a big decision with far reaching consequences... thread 1/
First of all the economic theory - tariffs are taxes on imports, protecting domestic producers at the expense of consumer prices. You can get a t-shirt if you want... but that's a far cry from saying unilateral tariff reduction is the way forward 2/ politico.com/blogs/politico…
Imagine no-deal Brexit, EU importers will pay more for UK products, but EU or indeed Chinese products imported to the UK will not be subject to tariffs - you don't have to imagine the effect - @AlasdairMSmith has written it - 12% hit to UK manufacturers 3/ blogs.sussex.ac.uk/uktpo/2018/02/…
So UK production shrinks on unilateral tariff reduction - is that what we want? Not only that, but you reduce the incentive on other countries to do trade deals with us - not only new deals but also the UK replacements for existing EU trade deals 4/
There's more though. Remember those claims that the EU was discriminating against developing countries, which largely isn't true as most products are imported duty free. Well, unilateral tariff reduction does hit developing countries 5/
So if the UK removes all tariffs there is no special preference for developing countries. Their exports to the UK will be hit. This is a particular problem in that most political of products, the banana, as fairtrade explain... 6/ fairtrade.org.uk/~/media/Fairtr…
But won't prices fall if we remove all tariffs? Actually not that much, according to research from the IFS last year. Prices tend to be downward sticky in any case in such situations 7/
Putting all of this together, the best projection is that unilateral tariff reduction will deepen the economic shock from no-deal Brexit, at the cost of growth and jobs. We can also expect significant currency devaluation in the short term 8/
We don't know how the economy would recover in the medium term - not least as we would struggle to get new trade agreements with little to offer in return (after tariffs the next biggest ask would be movement of people...) but of course at some point it would 9/
Summary: Tariffs may be economically inefficient, but unilateral tariff reduction is probably even more economically inefficient, as we are not competing on anything like a level playing field. I would be very surprised if the Government chose this path 10/ end
