The Kiwi is a flightless bird native to New Zealand. It is the smallest of the world’s flightless birds and is the bird that produces the largest egg relative to its size (ouch!). The greatest risk to the Kiwi is from animal predators. Now it would appear to be a suitable symbol for the Leave Campaign in the referendum vote.
On Radio 4’s Today Programme yesterday morning, there was an economic debate between the last Labour Chancellor of the Exchequer, Alistair Darling and the lead economist of the Leave Campaign, Professor Patrick Minford. Professor Minford was a prominent economist in the 1980s when he was economic advisor to Margaret Thatcher. His free market views were radical, even by Margaret Thatcher’s radical free market standards.
Whenever the Remain Campaign state that nine out of ten economists believe that there would be an economic meltdown following Brexit, you can guarantee that Professor Minford is the one who disagrees. He is the lead economic cheerleader for Brexit.
Yesterday, Alistair Darling mocked the Leave Campaign’s lack of any firm view about a possible British Trade Model following Brexit. He asked Professor Minford in fairly disrespectful terms whether after Brexit, Britain would seek to trade with the EU along similar lines to Norway, Switzerland, Canada or even Albania. He appeared to be totally unprepared for Professor Minford’s answer.
Professor Minford advocated that after Brexit, the United Kingdom should adopt entirely international free trade, so taking the advantages of the single market and spreading them worldwide in order to make Britain the major world trading centre. He suggests that we do not need to negotiate any trade deals with any nations. We will simply abolish all the tariffs on imports from any nation.
When asked why he thought the EU would agree to such a deal, he said it didn’t matter whether they agreed or not. We would simply refuse to apply any tariffs against the EU, even if they apply tariffs against us.
This is an entirely new approach. Chris Grayling keeps stating that of course the EU will negotiate a deal with the UK inside the necessary two years, as (he keeps saying) they need us more than we need them. Aside from the fact that Mr Graying’s view about the relative reliance of the either the EU and the UK on each other appear to be based solely upon exchange rate fluctuations and absolute terms rather than the relative trading positions and so is quite reasonably subject to a huge dose of scepticism, Professor Minford seems to be contradicting him. While the Leave Campaign’s big hitter, Mr Grayling states that of course the EU will negotiate a deal with us, their economic guru, Professor Minford is saying that it doesn’t matter if they do or don’t.
Mr Grayling’s optimism for a deal with the EU has been reported previously by The Mumbler, but it is based on a shallow glance at the woeful trade deficit, that this Country has racked up under the current Government of which he is a member. It is a strange belief system that suggests that weakness with which a nation trades with its nearest neighbours gives it a strong hand to negotiate with those neighbours. It’s a real Orwellian belief that weakness is strength.
The myth disintegrates if you step back and consider it from a different perspective. Imagine it was not the UK voting to leave the EU, but another nation such as Denmark. The UK’s economy is larger than Denmark’s economy, but only because the population of the UK is significantly larger. Per capita of population, the Danish economy is much more successful than the UK economy. Imagine that they voted to leave the EU. Would we really be telling them that they can dictate the terms of a trade deal in order that we can continue to sell our motor cars to them? That we would safeguard their pig farmers and lager brewers from tariffs? Of course we wouldn’t. We would be telling them that the effect upon their exports of the tariffs added as a result of their leaving would be greater than loss of the sales of our exports to them. The UK Government would simply not countenance this approach.
Now though Professor Minford takes an even more extreme view. The EU does not in his view need to negotiate such a deal. We would continue to allow them to export their German cars, French cheeses and French wines to us without additional tariffs. This means that all the cards Mr Grayling states that we hold over the EU, we would actually give up without any argument before the negotiations began. The EU would simply accept the position and apply their usual tariffs against UK exports. This would be a disaster for the UK exporting industries.
The British car industry would take a major hit. Forty percent of the cars manufactured in the UK are exported to the EU. The price of these cars in the EU would rise by the tariff value, but without an equivalent rise in the price of the EU exports to the UK. The massive trade deficit would become even more massive. There would be substantial over production in the British car industry which would result in retrenchment and ultimately a loss of jobs. The pressure on Sterling would become even greater than it is envisaged. Falling exchange rates, rising interest rates, rising inflation, rising unemployment. It does not look great.
One of the suggestions of the Leave Campaign was that being outside the EU would allow the UK to increase the tariffs against Chinese Steel to safeguard the British Steel industry. Now it appears that the Leave campaigner’s chief economist is suggesting that we should remove all tariffs. Saving the Tata Steel plants of South Wales has just become impossible.
Under Professor Minford’s suggestion, the British economy would become the Kiwi of the Northern Hemisphere. Unable to fly and at risk of being eaten by its neighbours.