Monday, August 08, 2016

Does The Times know how tariffs work? And does the Adam Smith Institute?

Some of the comments made on both sides during the brexit debate were sensible

Some of the comments on both sides were nonsense.

Those on both sides who are still fighting the referendum even after it is over, like Japanese soldiers on an isolated pacific island who don't know it's all over, are more likely to be making silly comments.

(That is presumably because the more astute people on both sides have moved on to debate what happens now: there is certainly plenty of room for debate about this.)

The Adam Smith Institute got quite hot under the collar about what they consider the idiocy of an article in The Times which suggested that if Britain is not in the single market the EU could put tariffs on British exports of food to the EU (which is true) and on imports of food from the EU to Britain, (which is most unlikely).

In calling this idiocy the ASI are slightly overstating a basically valid case - what The Times was suggesting is not entirely unknown but the majority of countries and customs areas do not do it and the EU is not one of them.

Tariffs or customs duties are a tax imposed by a country on goods coming in or out. The most common form of tariff is import duties, but it is also possible to have export duties on goods going out.

Under the Mercantilist philosophy which was popular up to the18th century, before Ricardo blasted it's intellectual basis to pieces, exports are a strength because they create jobs and bring in money while imports are a weakness because they can undercut workers and cost money.

Virtually no serious academic or professional economist would defend Mercantilism today, but to some extent the attitude in the paragraph above still lurks at the back of our minds.

Consequently, when nations decide to raise revenue from their foreign trade, tariffs on imports are very common indeed, but duties on exports are fairly rare.

One country which does impose export duties is Brazil as you can read here.

The World Bank lists here taxes on exports in various countries as a proportion of tax revenue. The lines for most countries are blank because most countries do not tax exports.

So much so that the ASI appears to have forgotten that export duties do in fact exist.

Although it is an overstatement, they are indeed right in that the EU does impose a common external tariff on imports from those countries with which they have not agreed a trade deal to mutually not impose one. And the EU does not impose duties on exports.

It is almost as unlikely that the EU would impose export duties on exports of food to Britain after Brexit as they they would impose export duties on exports of German cars. (French farmers and German car manufacturers respectively would communicate their unhappiness to their government in no uncertain terms if such a policy were put forward.)

But the whole issue does show that economic questions are often more complex than either side realises.

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