2021 BoP Update graphs

On 31st October the ONS published a breakdown by country of our balance of payments for 2021 so I have updated the graphs I do each year to show how our trade with the EU is developing.

We are now facing opinion polls showing a majority in favour of re-joining the European Union. How could this have happened?

Some Labour MPs, LibDems and Rejoiners think it is to do with labour shortages. They mistakenly associate tighter immigration with Brexit. But Brexit merely allows us to determine our own immigration policy, and that can be for more immigration if we so wish. So immigration now has nothing to do with Brexit. That shouldn’t be too difficult to get across but we have to make the point.

More seriously they associate Britain’s economic decline to Brexit. This is also nonsense as the above graphs illustrate.

The first graph shows our Balance of Payments (mostly trade) from the years 2000 to 2021, split between the EU (red line plummeting down through the floor) and the rest of the world (which I have split into three to show the US and China separately for comparison). Note that those other three lines taken together show a movement over that period into surplus. So at least until 2018 we have a divergence between the two areas – the EU and the Rest of the World.

How come? It can’t be us because we are common to both. It has to be Brussels. My theory (in the absence of any other explanation) is that since 2000 Brussels has be deliberately though surreptitiously blocking our exports in revenge for our not joining the Euro. The thieving bastards have been stealing our trade, and our dozy officials in Whitehall haven’t even noticed (or didn’t want to, which is even worse).

Is this important? Well yes it is because an increasing deficit presents British business with a contracting market, and business will not invest into a contracting market. No investment, no growth. It is the greater efficiency of production resulting from investment that creates economic growth. Tax cuts may help, but the opportunities to invest must be there in the first place.

This analysis is confirmed by the second graph which shows our growth rate plummeting alongside the EU trade deficit. The productivity gap is no mystery. It is a direct consequence of the increasing trade deficit with the EU, and explains why other countries are not experiencing it.

SO THE ONLY WAY WE CAN GET GROWTH GOING AGAIN IS BY RIPPING UP THE TORY DEAL AND USING TARIFFS TO OFFSET THE EU BARRIERS AND BRING THE BALANCE BACK INTO SURPLUS. ONLY UKIP IS SAYING THIS SO ONLY UKIP CAN GET THE ECONOMY GOING AGAIN.

Of course exporters will squeal if they have to face EU tariffs, but the uncomfortable fact for them is that our domestic market is far larger than our trade with the EU. Tariffs will reduce the volume of trade in each direction across the channel, but because we have a deficit the deficit will reduce as well. This means people in the UK will be buying more British stuff and less EU stuff. That presents British business with an expanding market to invest into thus generating investment and economic growth. So whilst those in exporting might struggle, those supplying the domestic market will have a bonanza – an import-substution led expansion.

Even better we can in fact protect our exports to the EU from tariffs, though not against the non-tariff barriers already there. This is because the new UK import tariff revenues will be much greater than the cost of the EU tariffs on our smaller volume of exports, so we can cross-fund them. It would be interesting in fact to start right now promising our EU customers a refund on any excess charges they are paying on British imports so we can confront Brussels with them. Doing so is entirely legal under WTO rules.

Looking at the past two years however we see that the deficit has reversed and it is tempting to say that is the Brexit Dividend! However It is much more likely to be due to Covid, but we will have to wait and see over the next couple of years. At least we can say it shows the current mess is NOT due to Brexit.

John Poynton.  December 2022

Advertisement

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s