Talking Trade why not don't mind if we do — the good news about WTO terms
Official figures show that WTO tariffs will be no barrier for British business.
Exchange rate fluctuations have had more impact than WTO tariffs — even before the Referendum
We have been told to expect a catastrophic drop in UK exports to the EU. Is there a huge risk to export markets?
Here is a table showing the top 10 non-food categories of goods we export to the EU, along with the average WTO tariffs that would apply to them.
Sources: WTO, ONS
With the exception of the 10% on motor vehicles and the 11.7% on apparel, the WTO tariff averages are mainly very low, and unlikely to make a great deal of difference to demand, even assuming that the EU does not make any trade concessions to the UK at all in the future.
The untold exchange rate story
There are various aspects to the price of exported goods and tariffs is just one of them. Anyone who has ever exported will tell you this.
One of the most important factors is the exchange rates. In other words, how much does it cost your overseas customers to pay you, in their own currency?
analyzed exchange rate fluctuations in the last few years. It turns out that the effect on the price of most British goods sold abroad has been affected more by movements in currency valuations than would have been the case under the EU’s tariff regime with the WTO.
The movements of the value of the British pound have regularly dipped up and down at a rate greater than the tariff averages — and this was happening before the Referendum, as I have demonstrated above by showing the fluctuation of 13% during 2015.
This means that British businesses and their overseas customers are already used to price changes — in excess of any tariffs which might be applied in the future.
But what about high tariff industries, such as motor vehicles and clothing?
With any export product, it’s not just about price. How desirable and specialised are our products? Economists understand that all exports are valuable — but some are more valuable than others.
The best exports are those where demand remains healthy, no matter what happens to price. Economists refer to this as the ‘elasticity’ of a product. When a product has low ‘elasticity’, people will keep buying it, even if there is a price rise. Think-branded goods, luxury goods and specialised goods.
This is most likely to be the case when products are of very high quality and have fewer direct equivalents. Britain has a sophisticated economy, and many of the products we sell abroad compete on the basis of quality rather than price.
This is important when, for example, looking at some of the car marques still based in the UK — Aston Martin, Bentley, Caterham Cars, Jaguar, Lotus, Maclaren, Rolls-Royce, and Morgan are luxury brands famous all over the world for their quality.
Politicians who denounce a WTO Brexit never mention this — but they should
One MP who has written extensively on this subject is the Rt Hon Sir John Redwood.
“If the UK just leaves the EU soon without signing the Agreement Treaty we can trade successfully with the rest of the EU as we do today with the USA, China, and other major countries. We do so with them under WTO rules with no special trade agreement. We have to impose EU tariffs.
“We can cut the tariffs we have to pay on imports from non-EU countries once out, as we will then decide for ourselves what tariff if any to impose.
Even with the same tariffs on UK exports as the EU imposes on the rest of the world at the moment, we would still trade well. All our extensive trade in services will continue to be tariff-free, and around half our goods exports as well. Aerospace, where we have big exports, are tariff-free, for example.
“The tariffs we do impose bring revenue to the UK government. To avoid our customers being worse off, the UK government can give us that money back in general tax cuts, with tax cuts help to businesses facing some tariffs on exports to the continent. We have already experienced a fall in the value of the pound greater than the increase in tariffs, so our goods should still be competitive.”
Exclusive commentary from the Rt Hon Sir John Redwood, MP for Wokingham, and former Single Market Minister
[ Sources: WTO | ONS | Bank of England | The Rt Hon Sir John Redwood MP