Archive for the ‘Trade’ Category

Easter Saturday papers – 20th April 2019

Easter Saturday papers – 20th April 2019


International trade secretary Dr Liam Fox has announced agreements that will boost trade if we leave the EU under WTO rules, reports the Express.

THE UK’s Trade Secretary boosted no deal Brexit plans by announcing a new trade agreement with the two nations as the Government fights to replicate around 40 current EU trade deals before Brexit day.
The new agreement means the UK will be able to trade freely with the two nations if the UK leaves the EU without a deal. Dr Liam Fox tweeted on Monday evening: “BREAKING: Our negotiators have just initialled a trade agreement with Iceland & Norway for the European Economic Area. “This is the 2nd biggest agreement we’re rolling over and trade with EEA is worth nearly £30bn.
“This is on top of the agreement we’ve signed with Liechtenstein.”
The announcement follows Dr Fox issuing a thinly veiled warning to MPs who are threatening to vote down Mrs May’s withdrawal agreement.
Discussing a third meaningful vote with Sky News’ Sophie Ridge on Sunday, the trade secretary said: “If we get a deal we will actually get all those deals rolled over. It will all happen if the Prime Minister’s deal is accepted.
“That’s one of the great bonuses that we get. It’s one of the things my colleagues in the House of Commons on both sides should be thinking about. If we want to get continuity in that, then the deal is on the table. We simply have to vote for it.”

Theresa May

She’s going to try again with her WA, reports the Express.

THERESA MAY will embark on another desperate scramble to get her deal through Parliament this week, with Brexit just 11 days away. Here are the latest odds and news on a no deal Brexit.
Last week, MPs voted to rule out a no deal Brexit at any time. While it’s clear the direction Parliament wants to take, the results of that vote are not legally binding. And unless something happens between now and 11pm on March 29, the default position of the UK is to leave the EU without a deal. You’d be forgiven for being a little confused as to exactly what went on in Parliament last week – if so, head HERE to catch up on what went on.

But the Telegraph reports she could be in for a new vote of no confidence.

Theresa May could face a new confidence vote in the wake of the European elections under plans that will be considered by senior Tory MPs this week, The Telegraph can disclose.
On Tuesday the 1922 committee of backbench Tory MPs will meet to discuss whether the rules should be changed to allow a new bid to remove the Prime Minister.
Alan Mabbutt, a senior Conservative Party official, has confirmed that the rules surrounding leadership challenges are not determined by the party’s constitution but by backbench MPs themselves.

And the Mirror reports that canvassers are avoiding mentioning her on the stump.

Tory canvassers are refusing to mention “toxic” Theresa May as they try to woo people ahead of next month’s local elections.
The Conservatives are braced for a bruising as angry voters switch to either Nigel Farage’s new Brexit  Party or Remain-supporting groups.
And unhappy activists reckon the PM’s Brexit performance has made her a liability as they campaign.
Grassroots Conservatives chair Ed Costelloe said: “Campaigners are only talking about what’s happening at a local level, because the frustration they are hearing about what’s going on at a national level is virtually universal.
“Most people canvassing are saying this is worse than anything before.

The Express reports she could upset her MPs by making arrangements to continue in post – despite her promises to stand down (sound like Bercow!).

THERESA MAY could enrage Tory MPs by asking for new legislative plans for the re-opening of Parliament after the Easter break – despite pledging she would stand down as party leader before the “next phase” of Brexit talks.
Government officials have been told to prepare final plans for legislation to be included in the Queens Speech, which opens Parliament annual after the Easter recess. But the Times reports the Prime Minister told Government departments she will “actively consider” ideas for the speech, which details the Government’s legislative programme. But the move will anger Tory MPs, following Mrs May pledging to stand down from office before the next phase of Brexit talks begin.
Any attempt by Mrs May to open a new session of Parliament will enrage Tory MPs asking for her to stand down.

Conservative Party

Meanwhile, the Telegraph has an exclusive report about senior Tories losing their seats in any forthcoming General Election.

Prominent Leavers including former Tory leader Iain Duncan Smith face losing their seats at the next general election as Brexiteers prepare to punish the Conservatives at the ballot box with voters threatening to boycott the local and European elections over the UK’s delayed departure from the EU.
New analysis by ComRes suggests the Tories stand to lose 41 seats, with 29 Leave MPs set to be ousted as voters switch to Labour, the Liberal Democrats and SNP following a public backlash against Theresa May in Conservative heartlands.

The Express reports that grassroots Brexiteers are furious.

FURIOUS Brexiteers are set to punish the Conservatives in the next General Election, with poll data indicating they could lose 41 seats, including 29 Leave MPs.
New analysis from ComRes shows voters could shift their allegiances to Labour, the Liberal Democrats and the SNP in the backlash. Tory MPs told the Telegraph the future of their party is “diabolical” and that voters had described the Westminster elite as “w*****s’. Local election officers have allegedly received calls asking what the point of voting is after Brexit was delayed again.
If a vote was held tomorrow, the poll suggests Labour would win 290 seats versus the Conservative’s 277.

The Express also claims the Tory party has selected anti-Brexiteers as prospective MEPs.

THE CONSERVATIVE Party has selected two MEP candidates who support a second referendum for the EU elections and have demanded Brexit is cancelled.
Theresa May has faced increasing pressure to support a second referendum as she remains in a bitter struggle to get her Withdrawal Agreement passed in the House of Commons.  The UK was granted a Brexit delay until October 31, meaning MEPs will take part in the European elections. Sajjad Karim, who has described Brexit as ‘madness’, will be top of the party’s MEP candidates list in the North West of England.
His selection comes as Charles Tannock, who co-founded the Conservatives for a People’s Vote campaign, will be on the ballot paper in London for the EU elections.

Labour Party

Labour has also selected Leavers to run in the Euros, reports Westmonster.

Jeremy Corbyn’s Labour Party have selected hardline anti-Brexit candidates high up on their lists for the European Elections. Anyone who respects the 2016 referendum result cannot possibly vote Labour.
The party itself clearly doesn’t think an EU deal with Theresa May to stop the elections going through is likely, saying on their website: “It now looks increasingly likely the UK will be required to participate in the European Elections on 23 May 2019.”
It emerged yesterday that Lord Adonis has been selected as number two on the Labour list for the South West of England. Adonis has been about about his desire to overturn the referendum result and kill off the UK’s exit from the European Union, describing the upcoming EU Election as a chance to “make them a campaign to stop Brexit”.
Also standing for Labour is Eloise Todd, who is number two on the list for Yorkshire and the Humber. Todd was CEO for ‘Best for Britain’, an anti-Brexit group that is said to have received at least £800,000 from foreign billionaire George Soros.
Best for Britain describe themselves as “a group of campaigners, businesspeople, entrepreneurs and citizens from across our country who have come together with one single mission: to oppose and stop Brexit”.


Nigel’s new party is hardening attitudes against the Tories, reports the Times.

The resurgence of Nigel Farage has left hardline Conservative Brexiteers even more determined not to vote for Theresa May’s deal.
Two polls this week put the former Ukip leader’s new Brexit Party in front of Labour and the Conservatives for the European parliament elections, due to take place on May 23.
“Whatever happens we cannot have these European parliament elections,” one senior Conservative toldThe Times. “The referendum was supposed to kill Ukip — what May’s done over the last two weeks has dug up the corpse and put Farage’s face on it.”


The Telegraph reports a comment by an EU boss saying that any resulting economic problems would be the fault of the UK.

Jean-Claude Juncker, the European Commission chief, has warned that the UK would be “100 per cent” responsible if its decision to leave the EU caused economic turmoil, as he urged MPs to vote for Theresa May’s Brexit deal.
In an interview with a German newspaper, Mr Juncker urged the UK not to waste its six month extension to the Article 50 process and added that he did not have hopes of the UK eventually reversing Brexit.
“We need to be prepared for a soft and a hard Brexit. In any event, the UK’s withdrawal will have a negative impact – more for the British than for the EU,” he told Funke.

ITV News also has the story.

Any kind of Brexit will have “negative consequences” which will be worse for Britain than the EU and be entirely the UK’s responsibility, European Commission president Jean-Claude Juncker said.
Mr Juncker said the “ball was in Britain’s court” and urged the House of Commons to support the deal negotiated by Theresa May.
A second extension to Brexit was granted to the UK following talks in Brussels earlier this month, with the so-called flextension meaning the departure date will be October 31 this year, or sooner if the Withdrawal Agreement is passed.
In an interview with the German Funke Media Groupe, Mr Juncker repeated the words of European Council president Donald Tusk and urged the UK “not to waste time”.

Juncker may be worried about no deal, but …  Reuters reports:

There is a still a concern that Britain may leave the European Union without a deal to smooth the way, the bloc’s chief executive said on Saturday, urging Britain to take advantage of a six-month delay to work out the details of its departure.
European Commission President Jean-Claude Juncker made the comments in an interview with German newspaper FUNKE Mediengruppe, a week after EU leaders gave Britain six months more to exit the EU.
“Nobody knows how Brexit will end. This is creating great uncertainty. There is still a fear that there will be a hard Brexit without any withdrawal treaty arrangements,” Juncker said, citing the long-term negative impact on Europe’s economy.
Even though the extension to Oct. 31 offers little clarity on when, how or even if Brexit will happen, Britain should use the time wisely, he said.
“I hope that the British will make use of this time and not waste it again. We cannot keep on putting off the withdrawal date indefinitely. The best solution would be for the British to adopt the Withdrawal Agreement during the extra time that has been agreed,” Juncker said.

But the US could take a hand if any agreement Is detrimental to Northern Ireland, says the Express.

THE US has warned the European Union it will oppose any Brexit deal that undermines the Northern Ireland 1997 peace agreement that could endanger a proposed trade deal.
The warning comes from US Democratic congressman Richard Neal and is the latest threat to the UK that a future trade deal with the US will not happen should Brexit put the Belfast Agreement at risk. Mr Neal is chairman of the influential House of Representatives oversight committee which scrutinises trade deals. Speaking to The Irish Times ahead of a US delegation’s visit to Ireland this week, he said: “If America wants a trade agreement with the European Union, which I think is very desirable – I want it – at the same time you are back to the same issue on the Border if you do anything that dampens or softens the Good Friday Agreement.”


The Speaker could be forced to allow the President to speak to MPs, says the Telegraph.

John Bercow must allow President Donald Trump to address Parliament this summer or risk damaging Britain’s special relationship with the US, ministers have suggested.
Preparations are underway for President Trump to make a full State visit to the UK in June to coincide with D-Day 75th anniversary commemorations.
But the Speaker is refusing to extend the traditional courtesy of asking the visiting President to address both Houses of Parliament.
US officials have made it clear that they are angered by Mr Bercow’s snub, which has become an embarrassment to the Government as it tries to make the State visit happen three years after it was first offered by Theresa May.

The Independent also has the story.

Donald Trump should be allowed by Commons speaker John Bercow to address parliament if he makes a state visit to the UK this summer, defence minister Tobias Ellwood has said.
His comments came amid mounting speculation that the US president will travel to Britain in June to coincide with the 75th anniversary of D-Day.
Mr Bercow sparked controversy in 2017 by saying Mr Trump should not be allowed to address Parliament on his visit to the UK.
He said that it was “not an automatic right, it is an earned honour”.
However, Mr Ellwood said the UK should “leverage” Mr Trump’s visit.

Climate change protest

Meanwhile, across London, the police have taken action to open the roads, reports the Independent.

Police have cleared climate activists from part of the Oxford Circus demonstration as the Extinction Rebellion protests entered their fifth day.
London’s busiest shopping street remained blocked despite although police manage to move the pink boat which had been used to block the junction with Regent Street.
The vessel was attached to a lorry and taken away up Regent Street followed by a number of jogging uniformed officers. Regent Street is still cordoned off by officers.

Sky News reports the arrests.

Police have arrested more than 680 climate change protesters as they say they aim to give businesses on London’s Oxford Street a chance to return to “business as usual”.
A Metropolitan Police spokesman said: “Officers have made a number of arrests, mainly focused at Oxford Circus, as we are trying our best to give the businesses a chance to return to ‘business as usual’.
“One thing that is unusual about this demonstration is the willingness of those participating to be arrested and also their lack of resistance to the arrests.
“To date (since Monday 15 April), we have made over 680 arrests and of course that places a logistical problem on, and not just, the police service for cell space but also the wider criminal justice system.”

And ITV News reports that the protesters pink boat has been removed.

A pink boat used by Extinction Rebellion (XR) activists to blockade Oxford Circus has been towed away by police after five days at the heart of the climate demonstrations in London.
The boat, which became a symbol for the ongoing disruption, was dismantled on Friday afternoon, several hours after Dame Emma Thompson used it as a stage to rally protesters.
Dame Emma Thompson has rallied cheering Extinction Rebellion (XR) activists blocking London’s busiest shopping street and declared “our planet is in serious trouble”.


Assaults on NHS staff have risen, says the Mirror.

The number of assaults on NHS staff has hit a record high, with 63 being attacked every day.
Figures show 23,009 were reported at hospital trusts across England in 2017/18 – up from 13,417 in 2010/11.
But the number is likely to be higher as not every NHS trust responded to the Freedom of Information request for details.
The chances of staff being attacked on over stretched wards has increased by half since the Tories came to power.


And violence in schools is also on the increase, reports the Times.

Almost a quarter of teachers are suffering violence at least once a week at the hands of their pupils, according to a union survey.
Evidence gathered from 4,912 teachers found that 89 per cent had been subjected to physical or verbal abuse over the past year and 24 per cent said they had been physically attacked by pupils at least once a week. About 5 per cent said this happened every day.
The poll by the NASUWT teaching union, published before its annual conference in Belfast, also found that 86 per cent of teachers had been sworn at and 42 per cent verbally threatened.

And ITV News reports that pupils are misbehaving.

More than two-thirds of teachers responding to a union survey have said they believe poor pupil behaviour is a widespread problem at their school.
Almost 700 teachers responded to the survey teaching union NASUWT carried out in Scotland between February and this month.
A total of 67% of the 673 respondents said poor pupil behaviour was a widespread problem at their school.
No one should go to work with the expectation of being physically or verbally abused.
NASUWT believes ways of dealing with the disruptive pupils in schools such as restorative behaviour strategies have left teachers “increasingly vulnerable to verbal and physical abuse”.


Hundreds of thousands of new homes could be built on land held by developers, reports the Telegraph.

Housebuilders are sitting on enough land to build more than 800,000 homes, analysis by The Telegraph has found, raising new ­questions about efforts to increase the supply of new properties and reverse the decline in home ownership.
The total number of plots in the top nine housebuilders’ land banks has risen by 25pc in the past five years to around 838,000. That is despite a ­series of Government reviews and policies meant to increase the rate of building.
Campaigners claim it is in the companies’ interest to hold on to land for as long as possible and cash in after it rises in value, but housebuilders insist they are held back by the planning system.

International Crime

An international court is called for in the Independent.

The challenges posed by webs of corruption  spreading across borders – fuelled by fraud, money laundering and illicit offshore funding schemes – has raised the urgent need for an international court, and a restitution fund which can fairly redistribute the money and assets seized back from illegal ownership, say the organisers of a newly launched petition.
More than $40 trillion of suspected “dirty money” secreted in offshore financial jurisdictions, and $30bn spent anonymously on luxury properties and goods are some of the estimated examples of this hugely bountiful and egregious trade.

The post Easter Saturday papers – 20th April 2019 appeared first on Independence Daily.

The political roots of capital mobility: reassessing Britain’s abolition of exchange controls

Jack Copley explains how the Callaghan and Thatcher governments in the late 1970s were concerned by the worsening performance of British industrial exporters, and so exchange control abolition constituted a strategy to depreciate sterling and boost export competitiveness.

Exchange controls – restrictions on the purchase or sale of currencies – have been thoroughly delegitimised as an instrument of economic management amongst advanced capitalist states. A state’s implementation of exchange controls is generally seen as a sign of that economy’s ‘emerging’ status, a temporary measure to respond to a severe crisis, or an indication of a development model that radically diverges from contemporary liberal ‘best practice’. Indeed, Argentinian President Mauricio Macri’s dismantling of his country’s currency controls after his election in 2015 was intended to signal Argentina’s entry into the modern capitalist world after more than a decade of populist interventionism.

Yet this has not always been the case. Following the Second World War, exchange controls were commonly employed by states to manage the exchange rate and balance of payments, despite IMF rules that sought to phase them out. Such controls constituted an important instrument for states as they sought to reconcile the globally interconnected economic order of Bretton Woods with national democratic politics.

How did exchange controls fall so dramatically out of fashion? Political economy literature has tended to focus on two factors. Firstly, in the 1970s states began to compete to attract mobile capital flows by pursuing a deregulatory race to the bottom. Secondly, the rise of neoliberal ideas during this same period, within both national policy-making circles and international organisations, acted to stigmatise exchange controls and capital controls more generally.

Britain occupies a special place within this conventional explanation. The British abolition of exchange controls in 1979 was amongst the earliest deregulations of this kind, and thus acted as an important domino in the global dismantling of currency controls. Further, the British case is said to best exemplify the combined role of competition and ideology in motivating exchange control liberalisation, as this policy was supposedly driven by a competitive desire to promote the City of London as a global financial centre and the Thatcher government’s commitment to neoliberal principles.

My research challenges this dominant explanation of Britain’s scrapping of exchange controls. I argue that this radical deregulation, which was actually implemented in four stages from 1977-9 by the governments of James Callaghan and Margaret Thatcher, should be understood primarily as an ad hoc, pragmatic attempt to address the serious governing dilemmas generated by the stagflation crisis.

The British state faced two major problems in the late 1970s: rising inflation and low rates of profit. Additionally, sterling began to rise in value following the 1976 IMF bailout and the discovery of North Sea oil, which aided in the fight against inflation, but exacerbated the profitability crisis by further reducing the competitiveness of UK exports. In this context, the scrapping of exchange controls was a double-edged sword. By abandoning controls on the sale of sterling, the value of the pound could fall, which would aid British exporters; yet this would compound the problem of inflation by raising the price of imports. Archival evidence suggests that both the Callaghan and Thatcher governments prioritised the export competitiveness problem, at the expense of inflation. The potential benefits for the City of London and the influence of neoliberal ideology played secondary roles in motivating this deregulation.

However, two barriers stood in the way of this strategy to lower the value of the pound. First, the Trades Union Congress was strongly opposed to the liberalisation of exchange controls, as they saw exchange controls as an important element of a much needed industrial strategy. Second, in a context of floating exchange rates, any attempt to manufacture a depreciation of sterling could frighten money markets and result in a run on the pound.

The Callaghan government was ultimately impeded by these obstacles. The Labour Party’s close ties with the unions, combined with the fact that their incomes policy was already putting a terrible strain on their relations with the Trades Union Congress, meant that they were wary of further incensing the labour movement through an aggressive policy of exchange control liberalisation. Furthermore, Callaghan’s administration failed to come up with a strategy to pursue this competitive depreciation of the pound without spooking global markets and risking a sterling crisis. The result of this combination of pressures was Labour’s limited relaxation of exchange controls in October 1977 and January 1978.

The Thatcher government had much more success in pursuing this policy. The problem of an opposed trade union movement had significantly eased following the Winter of Discontent. Additionally, the Conservatives forged a rhetorical strategy that they believed would allow them to put downward pressure on the value of sterling without frightening global markets. Key members of the Thatcher government publicly declared that exchange control liberalisation was motivated purely by laissez-faire notions of responsible economic management, rather than a pragmatic desire to boost British exports.

This strategy was remarkably successful, with Thatcher’s supporters and critics united in their belief that this policy was indeed driven by a deep commitment to neoliberal principles. The government hoped that this discursive strategy would act to reassure currency markets, and thus allow for a gradual diversification of investment out of the pound, rather than a full sterling crisis, with the ultimate objective of easing the terrible pressure on UK exporting firms. Confident in the success of this strategy, Thatcher’s administration took a ‘leap in the dark’ in July and October 1979 by fully scrapping exchange controls.

The UK’s abolition of exchange controls is widely understood as a crucial juncture in the creation of a global economy in which capital flows freely across national borders. Yet this policy was not primarily designed to privilege the City of London’s business nor can it be simply categorised as an expression of Thatcher’s laissez-faire credentials. Rather, this liberalisation was pursued by both Conservative and Labour governments as a strategy to postpone the worst effects of the global economic crisis of the late 1970s by boosting the competitiveness of British exports through sterling depreciation.


Note: the above draws on the author’s published work in the British Journal of Politics and International Relations.

About the Author

Jack Copley is Early Career Fellow at the Institute of Advanced Study, University of Warwick. His research interests include the political economy of financialisation, state theory, Marxism, and British politics. He has published in New Political Economy, British Journal of Politics and International Relations, Environment and Planning C, and Capital & Class.


All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Wikimedia Commons.

Nancy Pelosi: No US-UK trade deal if Brexit risks Good Friday accord

There will be no chance of a U.S.-U.K. trade deal if Brexit puts at risk the 1998 peace accord between Ireland and Northern Ireland, U.S. Speaker of the House Nancy Pelosi said Wednesday.

“We must ensure that nothing happens in the Brexit discussions that imperils the Good Friday accord, including but not limited to the seamless border between the Irish Republic and Northern Ireland,” Pelosi told the Irish parliament, according to the Irish Times.

“If the Brexit deal undermines the accord, there will be no chance of a U.S.-U.K. agreement.”

Some fear a potential hard border on the island of Ireland after Brexit could threaten to provoke a return to the violence seen before the Good Friday Agreement.

Pelosi, a Democract, echoed remarks in 2016 by then U.S. President Barack Obama, who said before the referendum on leaving the EU that the U.K. would have to go to the “back of the queue” for a U.S. trade deal if it voted for Brexit.

Current President Donald Trump has promised a “big trade deal” with the U.K. after Brexit.

Pelosi, who was welcomed by the Irish assembly with a standing ovation, praised the peace progress that has been achieved in Ireland since the Good Friday accord, saying: “We cannot jeopardize that.”

The IMF’s latest no-deal warnings are sloppy and overblown

The IMF’s latest no-deal warnings are sloppy and overblown
The author of this article is Harry Western.
This article was first published in Briefings for Brexit and we re-publish with their kind permission.

The International Monetary Fund has produced another analysis suggesting that a no-deal Brexit would lead to steep short-term declines in UK output. As before, its claims look exaggerated with some elements of their work not standing up to serious scrutiny. The IMF estimates are based on a host of highly pessimistic assumptions, some of which are out of date while others are not supported by academic evidence or real-world examples of how trade works. Worse still, some of the numbers the IMF uses – for example those related to ‘border disruptions’ – appear to be plucked from thin air. Claims about the effects on the financial sector are based on sloppy analysis and look utterly implausible.

In its April 2019 World Economic Outlook, the IMF has produced an analysis of the economic effects of a ‘no deal’ Brexit. Predictably, it is very negative and predictably it is based on a host of highly pessimistic assumptions. Parts of the analysis are downright sloppy and in some cases the IMF can justifiably be accused of simply plucking figures out of thin air.

The IMF produces two scenarios, a scenario A with no border disruptions and only limited financial market effects and a scenario B with large-scale disruptions and more severe financial effects. Both end up with UK GDP being around 3.5% below the IMF’s baseline forecast by 2021, with a temporary and deeper initial decline in output in scenario B. Their estimates imply full-year recessions in the UK in both 2019 and 2020.

What kind of assumptions are needed to generate such massive effects on UK GDP?

Trade barriers: the IMF assumes that the EU applies its standard tariffs (which average 3-4%) to UK exports straight away, with the UK mirroring these tariffs after a year – for the first year the UK is assumed to impose only its relatively liberal no-deal tariff schedule recently published.

Non-tariff barriers to trade (NTBs) equivalent to 14% of trade values also appear. This is on top of 10% NTBs the IMF already assumes will materialise in its baseline forecast – so the IMF is claiming total NTBs facing UK exporters to the EU after Brexit will average a colossal 24% of trade values.

  • Our take:the IMF’s assumption that the UK will ditch its relatively liberal no-deal tariff schedule and opt for increased protectionism after a year is arbitrary and unjustified.
  • IMF claims about the likely scale of NTBs are extreme. Detailed work by Kee & Nicita (2017) shows that the average tariff equivalent of NTBs facing UK exporters to the EU, weighted by imports, would be just 3.4%. Other recent model-based studies also have NTBs in a 3-8% range. A detailed study of post-Brexit NTBs for several sectors in the Netherlands found they might total only around 1% of trade values.
  • With UK and EU regulatory systems fully aligned at the moment of Brexit, claims of massive NTBs are even harder to justify. Many UK firms have also completed work-arounds to avoid such NTBs including switching testing and certification to EU-based bodies. The Bank of England’s latest survey showed 80% of firms were as ready as they could be for a no-deal Brexit.

Trade elasticities: the latest IMF study does not say explicitly what effect the rise in trade barriers it assumes will have on UK exports. But their previous workdoes, as it presents estimates of the price ‘elasticity’ of demand for UK exports to the EU. These estimates are around 4 for goods and 5 for services, meaning that a 1% rise in the price of UK exports would cut demand by 4-5%. On that basis, the rise in trade barriers the IMF assume would lead to a huge decline in UK exports to the EU.

  • Our take: the elasticity estimates are extremely high and contrast sharply with many academic estimates that point to UK exports being relatively price inelastic. These include Kee and NicitaAiello et al., and Imbs and Mejean. Typically, such studies suggest price elasticities for UK goods exports of 0.5-1.5 i.e. between an eighth and two-fifths of the IMF numbers. For services, the Bank of England finds a very low degree of price sensitivity of UK exports.

Trade deals: the IMF assumes the UK loses ‘most’ third-country free trade agreements in place via EU membership, with these being replicated only after two years.

  • Our take:the IMF’s assumption on EU free trade deals is inaccurate and out of date. EU free trade deals currently cover about 9% of UK trade (not 15% as the IMF claim), and 11% if the Japan FTA is included – which will only abolish tariffs over several years. The UK has already agreed rollover deals covering 60% of the 9% of UK trade covered by these EU deals, which will rise to 70% when the Canada deal – believed to be imminent – is agreed.

Financial services: the IMF appears to be assuming incredibly negative impacts on the UK financial services sector. In their 2018 study, they claimed that UK financial services exporters would face NTBs of 50% of trade values, with their output down 25% in the long run compared to a baseline where the UK stayed in the EU.

  • Our take:the IMF’s numbers here are totally implausible. The IMF relates them to the loss of ‘passporting’ rights for UK financial institutions, but the great bulk of UK financial services are of a wholesale nature and so are little affected by passporting which relates more to retail financial services. For retail activities there are also low-cost workarounds.
  • The IMF’s estimates are based heavily on a consultancy report by Oliver Wyman which is now widely discredited. That report claimed Brexit would lead to 75,000 job losses in the City of London, but the latest estimatessuggest a total of just 2000 roles have moved or been created overseas – a fortieth of the Oliver Wyman claims. Relying on this poor-quality report to calibrate such an important element of their work is sloppy practice by the IMF.

Financial market effects: in its more adverse ‘scenario B’ the IMF claims UK sovereign bond spreads would rise by 100 basis points and corporate bond spreads would rise by 150 basis points.

  • Our take: again, these numbers do not look plausible. In the aftermath of the 2016 referendum these spreads did initially show some ‘knee-jerk’ widening – but only for a very short period; the effect had unwound within a few weeks. The Bank of England helped this along with a modest programme of quantitative easing (including buying £10 billion of corporate bonds) and would have ample scope to repeat such an exercise if needed.

Border disruptions: the IMF’s ‘scenario B’ features ‘border disruptions’ that cut 1.4% of GDP in the first year and 0.8% off in the second.

  • Our take: here, the IMF appears to be essentially plucking figures out of the air. The numbers appear to be related to estimates the Bank of England presented in late 2018, which were treated with great scepticism at the time – including by Nobel Laureate Paul Krugman – as they had no obvious evidential base. To make matters worse, the Bank then abruptly halved its estimates a few months later – again with little or no quantitative evidence to back this up.
  • Claims of massive border disruptions ignore the very significant progress made in preparations by governments and businesses over recent months. These include new systems developed by Eurotunnel and the port of Calais to ensure smooth movement of goods, substantial expansion of facilities by the port of Rotterdam, the UK’s accession to the Common Transit Convention, new streamlined systems introduced for VAT and customs by the UK’s HMRC, the planned waiving of import duties on 87% of goods by the UK, UK-EU agreements on air and train travel and the UK’s recognition as a third country by the EU for animal and plant trade.
  • It is also not credible to assume disruptions would last for two years ­– behavioural changes and new agreements would mostly limit the timescale to a few months.

Policy responses: the IMF assumes UK interest rates are lowered in response to the negative impact of a no-deal Brexit, and that fiscal stabilisers are allowed to operate (so that the budget deficit rises ‘passively’). But no other policy responses, such as quantitative easing, are included in their analysis and the analysis also assumes the UK does not strike any new trade deals in two years.

  • Our take:ignoring the potential for the Bank of England to respond to any no-deal downturn with quantitative easing has no justification and looks like merely a convenient way of keeping the results a negative as possible. In practice, we know the Bank would do this, exactly as it did after the 2016 referendum result. Discretionary fiscal stimulus would be extremely likely too, especially given that the UK budget deficit has narrowed to less than 2% of GDP – there is plenty of room for it.

In conclusion, the IMF’s results are based on extremely pessimistic assumptions including trade barriers and trade elasticities that are as much as five times too high. The IMF has also added on massive ‘disruption’ effects and financial sector effects that have no proper basis in quantitative work at all.

With most policy mitigations and potential Brexit upsides also assumed away, we are left with a skewed and in places somewhat shoddy analysis. The IMF unfortunately has form in this area, having often ‘fitted’ its analysis to a particular political imperative. Its systematic exaggeration of growth prospects in countries receiving IMF funds – most dramatically, and embarrassingly, in the case of Greece – is a good example. Their latest Brexit analysis comes from the same stable of politically convenient analyses and is best filed under ‘ignore’.

The post The IMF’s latest no-deal warnings are sloppy and overblown appeared first on Independence Daily.

Jeremy Hunt: Brexit paralysis ‘highly damaging’ to UK’s global image

U.K. Foreign Secretary Jeremy Hunt warned today that continued indecision around Britain’s exit from the EU would be “highly damaging” to the country’s standing around the world.

Speaking to the BBC’s Today program from Japan, where he is on an official trip, Hunt urged MPs to resolve their differences and agree on a deal, saying the U.K.’s trading partners just want Britain to make up its mind on Brexit and get on with it.

He said Japan, and other countries, “are very, very keen to protect their trading relationship with the U.K., [and] the point that I’m impressing on Japanese people I meet is our absolute determination to resolve this quickly.

“Whatever the outcome of Brexit, Britain is going to be the best place in Europe to invest … But it’s absolutely clear that Brexit paralysis, if it continues for a long time, will be highly damaging to our international standing,” Hunt said, adding that trading partners worry that Britain “will become submerged in the mire of Brexit indecision” and want the impasse resolved as soon as possible.

Hunt told Japanese Prime Minister Shinzō Abe in a meeting at the leader’s residence in Tokyo: “We recognise that Japan has many investments employing hundreds of thousands of people in the U.K. We want strong cooperation to continue.”

The British foreign secretary said he had discussed Brexit with Abe, and with officials at automaker Toyota, “but we [Hunt and Abe] also spoke for much longer about … global security, defending the Western way of life — things where Britain and Japan have an enormous amount in common.”

“The Japanese and other countries … want us to make up our minds as to what kind of Brexit we want to have,” he said.

Hunt noted that ongoing talks between the Conservative British government and the opposition Labour Party to try to break the Brexit impasse “are detailed and more constructive than people had been expecting.

“But we don’t know if they’re going to work, and it may be that we have to find a way to rebuild the Conservative-DUP coalition,” he said, referring to the government’s parliamentary ally, the Northern Irish Democratic Unionist Party, which has consistently expressed its disapproval with the government’s handling of Brexit, especially the inclusion of the Irish backstop in the Brexit deal agreed with the EU, and Prime Minister Theresa May’s decision to have talks with Labour leader Jeremy Corbyn to break the current Brexit deadlock.

“It’s time to really put our shoulders into it and make this happen,” Hunt said.

Trump slams ‘brutal’ EU’s Brexit approach

U.S. President Donald Trump criticized the European Union’s “tough” treatment of Britain following its decision to grant the U.K. a further extension at Wednesday’s special Brexit summit.

“Too bad that the European Union is being so tough on the United Kingdom and Brexit,” the U.S. president tweeted Thursday after the summit concluded, adding: “The E.U. is likewise a brutal trading partner with the United States, which will change.” He finished on a philosophical note: “Sometimes in life you have to let people breathe before it all comes back to bite you!”

Earlier this week, Trump issued a fresh threat “to put tariffs on $11 billion of EU products” as part of a longstanding dispute over airplane manufacturing subsidies.

EU ambassadors will hold a crucial meeting this afternoon to decide whether to approve the negotiating mandates for EU-U.S. trade talks. Europe’s carmakers are anxious for talks to begin, hoping they’ll mitigate the threat of U.S. tariffs on cars.

Trump’s Brexit tweet came after EU leaders convened into the early hours of Thursday morning to consider U.K. Prime Minister Theresa May’s request for another extension for the divorce talks, settling on a six-month postponement of Friday’s deadline. Trump previously said he gave May his “ideas [on] how to negotiate” Brexit with the bloc, but that she “didn’t listen.”

Powered by WordPress | Designed by: index backlink | Thanks to insanity workout, car insurance and cyber security