Deals of Fortune

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Of course lots of people are arguing that there won’t necessarily be any post Brexit tariff barrier to trade with the EU for some goods. But assuming there will…

Some also argue in other cases that even if there were a tariff applied to, say, BMW cars exported to the UK that alone does not mean they would necessarily be more expensive for me to buy. It feels like cars already cost more in the UK because our market will bear it. So if BMW mark-up cars more for the UK than they do in other parts of the world then the tariff might be nullified simply by BMW pricing lower within its extra UK profit margin.

… These are just small points about specific goods. So to a bigger picture for some perspective; why would a 5% tariff be a high estimate of a plausible future trade deal with EU? Well, average tariffs between western countries are in low single figures.

These average tariffs are small compared to fluctuations in currency exchange rates. So the variation of the pound against the Euro will have a greater effect on tradability than any likely future tariff.

How important is are trade deals? Regardless of trade deals a country can thrive if it produces something other countries want.

If we left the EU and had no trade deal, an extreme worst case, all our exports might attract EU tariffs of around 2 or 3 per cent.

How to put that in perspective? To use a figure the Remain campaign are happy with, net EU membership fee costs 8.5 billion pounds a year. Right. How does that stack up against the bad deal described above? From the Office of national Statistics figures I’ve added up that in the 12 month period up to Nov 2015 (that was the latest period available) we sold about 135 billion pounds of exports to the EU. 8.5 is about 6 per cent of 135 so the existing EU membership fee could already be likened to paying a 6 per cent tariff on all our exports to the EU. Wow I never thought of it like that before.

Paying a 6% fee to save a hypothetical 3% tariff…. I know it’s more complicated than that but it puts it in perspective and leaving does not seem quite so bad to me with respect to trade.

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