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The beginnings of some sense on tariffs

Summary:
In order to be able to deal with reality first we’ve all got to recognise reality. Understand what is actually happening out there. So far, one cheer for people beginning to grasp what trade tariffs are:Ministers say they will reclaim Britain's mantle as the world's foremost free trade champion with a radical overhaul of tariffs that could save households £8.3bn a year. The Government has pledged to slash thousands of tariffs and strike deals with the US and other countries as the nation sets its own trade policy for the first time in almost 50 years.The Department of International Trade (DIT) is consulting on a new post-Brexit UK Global Tariff, cutting the cost of a swathe of goods ranging from fridges to bricks, burglar alarms and some food products.Many tariffs will fall sharply, with

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In order to be able to deal with reality first we’ve all got to recognise reality. Understand what is actually happening out there. So far, one cheer for people beginning to grasp what trade tariffs are:

Ministers say they will reclaim Britain's mantle as the world's foremost free trade champion with a radical overhaul of tariffs that could save households £8.3bn a year.

The Government has pledged to slash thousands of tariffs and strike deals with the US and other countries as the nation sets its own trade policy for the first time in almost 50 years.

The Department of International Trade (DIT) is consulting on a new post-Brexit UK Global Tariff, cutting the cost of a swathe of goods ranging from fridges to bricks, burglar alarms and some food products.

Many tariffs will fall sharply, with “nuisance” charges of less than 2.5pc cut to zero in a bid to slash costs for families and manufacturers.

Tariffs are, in the jargon, incident upon consumers. That is, it’s us out here, we people buying things, who pay the tariffs. They’re a tax on the people who have the temerity to buy things made by foreigners.

So, lower tariffs, households save that £8.3 billion a year, isn’t that lovely? Except that’s only the lower bound of what is saved. For the point of the tariff is to “protect” the domestic producer. To allow them to charge higher prices in the absence of that foreign competition. So the costs to households are the tariffs collected plus the higher prices charged by domestic producers as a result of the existence of the tariffs.

We consumers are all made poorer by their existence. Therefore, given that we’d all like to be richer - indeed, the very point of having an economy is so that the people become richer - we should have no tariffs.

But it is only the one cheer so far. For the truth of that reality out there hasn’t sunk in properly as yet:

Ms Truss told Parliament that the UK will "drive a hard bargain" in its trade negotiations and is "prepared to walk away if that is in the national interest".

What negotiation? Walk away from what bargain? It is in our simple - and complex - interest to not tax ourselves for buying those lovely things made by foreigners. Therefore we should simply announce unilateral free trade and declare victory:

"My only lament for the UK is that the immediate plan is not to cut all tariffs to zero on Jan 1, 2021.”

Quite so, we did this in 1846 when we abolished the Corn Laws. That’s just when real wages started to rise substantially after the Engels Pause. Why the heck don’t we just do what we know works?

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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