The old paradigms die hard, don\’t they?

The eurozone crisis certainly provides a convenient excuse but it doesn’t really explain why the UK’s export performance has been so poor relative to its continental competitors. The latest projections from the European Commission suggest that the UK’s export performance in 2012 will be one of the worst in the EU. A likely 0.2 per cent gain compares dismally with projected increases of 3.9 per cent for Germany, 2.6 per cent for France, 2.1 per cent for Spain and 1.1 per cent for Italy. Even Greece does better, with an expected gain of 0.8 per cent. None of these figures is particularly impressive, but in a sea of mediocrity, the UK stands out for all the wrong reasons.

In a world of fixed exchange rates export performance is vital.

In a world of floating exchange rates it doesn\’t matter a toss. For exports are our labour and resources that we send abroad for foreigners to enjoy. So we export less? We enjoy more of our own labour and resources.

The only point of exports in this floating rate world is, eventually, to pay for the things that Johnny Foreigner can supply us with better than we can make ourselves.

We\’re just no longer in an \”Export of Die!\” world, yet all too many people seem to think we are.

8 comments on “The old paradigms die hard, don\’t they?

  1. Lots of supposedly-well-informed commentators remember when the trade figures were headline news at 9 o’clock.

    However it does matter when Johnny Foreigner stops lending to us to buy nice things from abroad, especially if we’ve shut down our own domestic capacity to make those nice things.

    It would be a shame, for example, to build a high speed rail track and find that nobody would lend us the money to buy the Japanese trains to run on it. I don’t think we are anywhere near that point, though.

  2. “In a world of floating exchange rates it doesn’t matter a toss.”

    this is not right Tim. If you have unemployment, and a fiscal deficit, and demand constrained firms, excess capacity and even, possibly, a balance of payments problem building up, then exports can matter.

    your logic only holds in a full employment world.

  3. The only point of exports in this floating rate world is, eventually, to pay for the things that Johnny Foreigner can supply us with better than we can make ourselves.

    And the only point of your heart is to keep your blood circulating.

    The financial crisis is, ultimately, a balance-of-trade crisis. The large trade deficits being run by the USA and the UK are a problem.

  4. Of course a trade deficit is a problem – it’s just the net deficits of 65 million or however many people combined. It shows a whole load of people spending beyond their means. So it’s a problem depending on the timescales involved. Fine to have years when you spend more than you earn, possibly even lots on the trot, but if you never have years the other way around you (or your creditors) are in trouble.

  5. Floating exhange rates keep trade in balance as there is no demand for a currency if there is nothing to buy with it. Therefore imports go up in price, and down in quantity in balance with the export quantity.

  6. Paul B>

    “The financial crisis is, ultimately, a balance-of-trade crisis.”

    No, the ‘financial crisis’ is actually a purely political crisis. Hence why it’s not yet sorted out.

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