Spud you didn’t like

George Fox says:
December 27 2016 at 7:43 pm
*Have* to pay import tariffs? We will only *have* to pay import tarriffs if *we* for some bizarre reason chose to impose them.

Richard Murphy says:
December 27 2016 at 8:34 pm
I clearly need to look at this, but I believe WTO rules require tariffs be imposed

But I accept I may be wrong

George Fox says:
December 27 2016 at 11:08 pm
WTO rules are that tariffs must be no more than 5%. Zero is less than five.

Richard Murphy says:
December 28 2016 at 6:56 am
Where did you get that one from?

Well, actually, I got it by phoning up the WTO and asking them:

To insist, meanwhile, that we must raise tariffs on the imports we desire is to misunderstand the WTO system. As a source in Geneva explains, Britain is a WTO member in its own right and will still be so even after Brexit happens. This means that we have promised not to charge higher than the allowable ceilings in tariffs upon imports from other WTO members. The Most Favoured Nation clause also states that whatever we do decide to charge ourselves, we must apply the same rate to the same products from all different WTO countries.

But not charging higher than the allowable ceilings does not commit us to charging anything at all. We can apply a 0 per cent rate (yes, I checked) if we so wish.

That is, being outside the EU means we do not have to charge the EU external tariff rates upon anything and can insist that we pay ourselves nothing on all sources of food from everywhere.

You know, actually checking stuff?

This is also Spud idiocy:

John Whiting says:
December 27 2016 at 8:49 pm
I have just done a quick bit of googling and it seems that under WTO rules the UK can’t impose tariffs on imports higher than the the EU imposed, but the UK could adopt the same, lower or no tariffs on imports.

Richard Murphy says:
December 27 2016 at 9:18 pm
So we give tax to others…….

Interesting game play

Now you know why we did VAT

He’s still not getting tariffs, is he? They’re paid by consumers within the tariff barrier (if there is to be any revenue at all that is). Thus tariffs on imports into France are paid by French people, not us. Who is giving away revenue?

25 thoughts on “Spud you didn’t like”

  1. Actually, I think I can follow his logic.
    Tax must be paid.
    So tax must be levied.
    If the UK does not impose taxes on imports from France, the French will impose levies on exports from France to the UK.
    So the French will get the tax benefit & the UK consumer will still pay higher prices. Effectively a tax transfer UK>France
    Or something.

  2. This is my favourite Timmy post of the year , because it’s my favourite Ritchiebollocks moment and my favourite Project Fear lie of the referendum.

    The Director General of the WTO no less told during the campaign that, if the UK wished to JOIN the WTO, it would be required no less to impose WTO tariffs on imports. A complete and egregious porky. And Ritchie believed it. Ahahahahahahahaha.

  3. Without irony, he writes…..

    Richard Murphy says:
    December 27 2016 at 8:35 pm
    This looks like back of the envelope stuff….

  4. Ironman: Oh let the French impose an export tariff; I do believe they are that stupid.

    I don’t. Self-interest will always trump vicarious vindictiveness.

  5. I don’t. Self-interest will always trump vicarious vindictiveness.

    Given that the last Frenchman to understand economics was Bastiat, will their self-interest even be pricked while they are “sticking it to the Anglos”?

  6. BiW: I don’t think exporters in France or elsewhere need to understand economics at anything more than a Murphy level.

    Of course, I agree that people/organisations/countries are perfectly capable of cutting off noses to spite faces. Where the noses belong to one group (exporters) and the cutting is being done by another group (Juncker, Schulz, Barnier) the implementation becomes more problematic.

  7. We could even leave the WTO. By putting in a loophole that allows regional trading areas to apply whatever tariff regime they like without it affecting most favoured nation rules, it undermines the whole point of it and encourages nations to coagulate into larger units.(Unless that is the actual point?)

  8. BiW: “Given that the last Frenchman to understand economics was Bastiat…”

    I beg to differ. I happen to be a Frenchman (I must say that reading the comments on this blog is sometimes, shall we say, edifying) and I think I understand a bit about economics. On the other hand, that may be why I no longer live in France.

    It is interesting, if you are so inclined, to muse on the fact that France produced economists such as Jean-Baptiste Say and Frédéric Bastiat, as well as people such as Colbert. Or Piketty, for that matter.

  9. Hedgehog

    I was going to use Jean Baptiste Say but he died before Bastiat I think!

    Most Frenchmen I know would read one blog entry by Murphy and recognise the guy’s deep and profound ignorance….

    The quality of the comments there has reached a new nadir I think – apparently Turkey’s potential membership ‘ wasn’t seriously discussed’ – he is, by a margin certainly the most idiotic contributor on economic issues out there currently in cyberspace today….

  10. “I clearly need to look at this”

    First time for everything. We have seen the first tiny step towards enlightenment today. A momentous event.

  11. Bloke in Costa Rica

    Joy shall be in heaven over one sinner that repenteth and all that, but you know he’ll be backsliding almost immediately.

  12. Tim, are you sure this is correct? Is there no tax incidence happening here?

    Surely a British seller might reduce his price by some amount to get a sale in France if the French buyers balked at the pre-Brexit price plus tariff.

    Our Canadian lumber producers often take a hit in the price shorts when the Yanks impose tariffs on us because bubba cried to his congresscritter and/or bribed him with cash and hookers.

  13. @Fred Z: that was my point when this came up before – the importer might reduce his margin by some amount to remain competitive with the home country producers, and continue to make sales. It would depend to what degree the imported good was in a competitive market or not, and whether it was a cheaper source of supply as well – for example New Zealand lamb has a lower cost of production than UK produced lamb, so if a tariff was put on lamb imports, it could afford to not increase its prices by the full amount of the tariff and still be profitable, and competitive with UK produced lamb.

    Similarly some products have a need for certain scales of production – steel for example. So dumping cheap steel on some foreign market, even if its at zero profit, or even a slight loss because of a tariff, might make sense if managing to get rid of that production allows the rest of the production to be sold somewhere at a profit.

  14. Having followed most of Timmy’s comments on Murphy, over some time, I am wondering if there’s some unknown procedure going on, called “reverse learning”. He (Richard, not Timmy) does seem to be getting stupider, and less well-read, as he goes along.
    Deserves some scientific study, I think. Can I get a grant? Please?

  15. “Tim, are you sure this is correct? Is there no tax incidence happening here?”

    Yes. Tariffs are a cost to the consumers of the country imposing them and the manufacturers of other countries, and a benefit to the manufacturers (for each specific good) and government of the country imposing them. While manufacturers gain from their own product being protected, they lose from the protection imposed on all the other products they buy. The net costs are greater than the net benefits, and society as a whole loses by it.

    Tariffs are basically a mechanism by which local manufacturers conspire with their own government to exclude foreign competition and raise prices for local consumers. The main cost is borne by consumers in the country imposing the tariff. However, this issue is ignored in most of the political debate because it makes clear how the British public are being ripped off by their own government, and that’s not a vote winner. Shhhhh! The issue that exercises everyone is the implications for manufacturers.

    If British import tariffs are dropped, that hurts British manufacturers because they lose business to foreign manufacturers who can provide it cheaper. If EU tariffs are imposed that hurts British manufacturers previously exporting to the continent, who now get excluded, to the benefit of EU manufacturers (and to some degree, the manufacturers of other non-EU countries) because the price of goods in EU countries will rise. However, the continental manufacturers loose more than they gain because they are also consumers of all the goods they don’t manufacture, and therefore suffer from those higher prices. And the British manufacturers who can no longer sell to the continent can instead sell to other non-EU countries should we be able to do deals with them in which they drop their tariffs in exchange for us dropping ours. When we were in the EU, we wern’t allowed to do that. Whether we can do it now remains to be seen. But it means it is not clear whether Brexit will be a net benefit or loss to British manufacturers (taken in isolation) in the future. It will definitely be a benefit to British consumers.

    The distinction between manufacturers and consumers is an artificial one when we’re talking about the entire tariff regime rather than individual tariffs, because manufacturers are also consumers. When lobbying for one tariff, the manufacturer of that product obviously gains at the expense of everyone else, but when talking about lots of tariffs simultaneously, each loses more from elveryone else’s tariffs than they gain from their own, so the motivation no longer applies. If you add the two effects together, a reduction in import tariffs benefits manufacturers locally as well.

    In general, tax incidence falls on all trading parties in proprtion to the elasticity of supply and/or demand in each market – it falls heaviest on those with the fewest alternatives to the trade. When you’re in a country imposing import tariffs, you have no alternative but to buy local or pay the tariff. Your options are unequivocally reduced. When you’re in a country that stops imposing tariffs, while certain others start to impose them, you can switch more easily. Instead of exporting to France, you export to Canada. You have more alternatives. So yes, there is an element of tax incidence from foreign governments imposing tariffs that imposes a local cost, but it’s more than offset by the bigger tax incidence benefit from dropped tariffs elsewhere.

    Unfortunately, the argument depends on understanding how all tariffs are a rip-off, so it’s unclear whether the Tory Party (who have always previously supported protectionism in the interests of their big business donors) will be able to understand or push through the point against the reflexive political opposition to dropping tariffs that’s sure to arise.

    “Surely a British seller might reduce his price by some amount to get a sale in France if the French buyers balked at the pre-Brexit price plus tariff.”

    Why would he want to?

    Any manufacturer can reduce their prices to get higher sales any time they like. They generally don’t because their aim is not simply to get sales, but to make more profit. They will only do so if the increase in sales outweighs the loss in profit per sale.

    Higher barriers to trade reduce sales, and raise prices. Apart from the brief transition period while things adjust, reducing prices makes no sense in the face of that – although I can’t say for certain there are no circumstances where it might happen.

  16. BiW, Hedgehog>

    I really doubt Piketty could have managed to gin up some suitably impressive justifications for his predetermined conclusion that ‘the jooz are stealing all the money yah boo sucks’ if he didn’t have excellent knowledge and understanding of real economics, just like the pseudo-scientists who prop up homeopathy have to be very knowledgeable about real medicine, clinical trials, and so-on.

  17. Dave: I suppose it depends on what the meaning of “knowledge and understanding of real economics” is. If it means using trumped-up data to come up with predetermined conclusions while employing statistically and economically valid concepts in a valid way, I suppose so. I tend to take a different view of what a “real” economist ought to be about.

    May I point out that, by your definition, Michael Mann is a real climate scientist and actually deserves his self-conferred Nobel Prize?

  18. NiV: Interesting comment, but I am not entirely sure that it accounts for many painful realities.

    Your question about reducing prices “Why would he want to?” often has many answers. Because he knew he would still make a good return. Because his return even at reduced prices is higher than his domestic return and his return from other international sales. Because he just bought/leased a larger plant and hired a larger workforce so has to make some profit, even a reduced one, or go bankrupt.

    Which also brings up the tax incidence argument that the tariff might also be partially passed on to the exporters suppliers, including employees.

    I am always deeply suspicious of any statement that “Tax X is borne by Y”. People are much, much more clever and slippery than the tax man, who is most often a dolt.

  19. “Interesting comment, but I am not entirely sure that it accounts for many painful realities.”

    Fair enough. Let’s talk about it. I may be missing something, and I’m always happy to learn something new.

    “Your question about reducing prices “Why would he want to?” often has many answers. Because he knew he would still make a good return.”

    OK. But under what circumstances would he still make a good return? It needs more details.

    “Because his return even at reduced prices is higher than his domestic return and his return from other international sales.”

    How does that work? Given that the cost of sales is higher due to the tariffs?

    “Because he just bought/leased a larger plant and hired a larger workforce so has to make some profit, even a reduced one, or go bankrupt.”

    As a temporary measure, that can happen. That’s why I inserted: “Apart from the brief transition period while things adjust…”, because most businesses can’t make dramatic changes instantaneously. But if the market for your product disappears overnight then you make adjustments. Find alternative customers, diversify into different products, or – if all else fails – shut down and make that workforce redundant. That happens in business all the time, though – there’s nothing different about Brexit in that regard.

    “Which also brings up the tax incidence argument that the tariff might also be partially passed on to the exporters suppliers, including employees.”

    If it impacts the exporters at all, then yes, some is likely to be passed on to their suppliers, customers, employees, shareholders, and so on throughout the economy. And yes, in theory, there will always be some impact. The question is, is it significant? If one party has many alternatives, so instead of selling to A they just sell to B instead, it’ll affect the price slightly, but make no real difference.

    The problem is that people keep on taking one tiny piece of the picture in isolation – the existing trade relations with other EU members – and talking about the impact there while ignoring the rest of the picture. It’s like saying that if I move house from city A to city B, all my current trading relations in city A will be more difficult – it’s now about a 3 hour trip to the Asda I always shop in! And it’ll be an equally long commute every morning to my place of work. The petrol prices alone are going to make me sooooo much poorer!

    But maybe I’m so well paid that I’ll be willing to take the hit? Maybe I’ll still keep on shopping in my old town, working at the same employers, and take the petrol costs out of my wages? And pass the costs on to my wife and kids? Yeah, sure, it’s possible. But why?!

  20. Hedgehog>

    No, Mann’s pseudo-science isn’t up to the same calibre as Piketty’s. But if it were, then that would mean Mann would have to have an excellent understanding of real science. That is rather different from saying he’s using that understanding to work in good faith.

  21. Dave: Point taken. Mann didn’t just torture the data, he tortured the statistics as well. I was being hyperbolic.

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