Tuesday, 13 December 2016

Tying One Arm Behind Your Back

It's very frustrating reading all the opinions about what kind of Brexit we will have in relation to trade effects, and whether being outside the EU's customs union will incur the penalty of this or that tariff. For those that don't know, a customs union is a politically constructed trade bloc within which member states trade without tariffs, and outside of which other nations have tariffs imposed upon them. A free-trade area is a politically constructed trade bloc whose nations have signed a free-trade agreement that has very few or sometimes no trade barriers.

The existence of tariffs is infuriating to anyone who understands economics, because they do harm in virtually every area of society. Governments impose them because it gives them a bit of extra revenue, and because there are enough uninformed people in the country who think that by making imports harder the government makes exports and domestic business easier, leading to the domestic economy being better off (an asinine misapprehension that I blogged about here)

The reality is, by increasing the cost of imports, tariffs hurt all domestic economies, as they lead to a decline in consumer surpluses. A really obvious case is seen with the EU's tariffs on agricultural products, which make agricultural products more expensive for EU consumers by putting up barriers to competition. Restricting competition doesn't just inflate prices, it also diminishes quality for the consumer, because if your industry is protected from competitors it is shielded from the need to increase efficiency. And that's to say nothing of the wider costs of tariffs to developing nations trying to compete in a global economy, and all the additional costs to consumers when trade partners retaliate with their own tariffs.

Tariffs are a horrid political interference in free trade, and the harm they impose is hugely frustrating, as seemingly few people ever really stop to question their existence and challenge politicians to put a stop to them. Such are the benefits of free trade that even if every country is imposing tariffs on us, we'd still be better off domestically by not imposing tariffs on foreign exporters. Hearing our political elite spitting and spluttering about negotiating their way out of numerous political interferences is one of the saddest reminders of how frivolously politicians impede and retard all the prodigious benefits of free trade.