Mutually assured destruction

The votes in Britain to withdraw from the European Union and in the United States to elect Trump were at bottom the same thing: an assertion of racism slightly veiled in a tissue of crackpot economic notions.

The racism is coming along nicely in both countries, thank you very much, but dealing with the crackpot economics is more urgent in the United Kingdom, because of deadlines in the EU Treaty. It has not gone well there.

In the London Review of Books, Swati Dhingra and Nikhil Datta (economists in London) run down all the difficulties facing Britain in withdrawing from the European Union, in an article called “How Not to Do Trade Deals.” (See https://www.lrb.co.uk/v39/n18/swati-dhingra/how-not-to-do-trade-deals)

It turns out it is hard to recruit partners into an economic suicide pact. Who could have guessed?

Although the essay scarcely mentions the United States, almost every line applies here and I urge you to read the whole thing. (See https://www.washingtonpost.com/business/economy/trump-twitter-bombs-and-a-negotiating-standoff-how-nafta-talks-could-fail/2017/10/06/96b25f68-a91b-11e7-850e-2bdd1236be5d_story.html?utm_term=.fe5d34428758) But to tempt you, here are a few nuggets:

“The UK supply chain is highly integrated with the EU, with some car parts crossing borders about forty times. As a result, car makers and the government would like a sector-specific trade deal, that keeps the tariffs on cars and car components at zero and counts components from EU countries towards the rules of origin. But the UK and the EU can’t sign a deal that removes tariffs on cars and no other sector. To prevent countries cherry-picking and discriminating against other members, the WTO only recognises bilateral trade deals that cover almost all forms of trade between the signatory countries. A zero tariff deal for the car industry is therefore unrealistic.”

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“A larger problem is trade and foreign investment in the services sector, which makes up 80 per cent of the UK economy. There are no tariffs on services: non-tariff barriers are the main hurdle.”

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“Despite all this a UK-China deal could still lower costs of goods for UK consumers, but deep integration with a country like China, where labour is cheap and abundant and which has very different standards of safety and environmental regulation, is likely to hurt British blue-collar workers – the people who voted for Brexit. To avoid this the UK could insist on worker protection and consumer rights in its trade deals with developing countries. It could insist on social clauses in trade agreements that include the monitoring of safety standards, as the US has done with its Better Factories Cambodia project. But getting countries like China to agree to such clauses would be very difficult.”

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