If you want to understand the economic debate around Brexit and participation or non-participation in the EU customs union and its Common External Tariff (CET), look no further than football and the World Cup.
Think of the world’s best footballers as goods or products that can be imported to or exported from the UK. They are subject to a hypothetical 20 per cent tariff under the CET, if brought in from outside the EU.
If the UK stays inside the customs union, players from the rest of the world would cost 20 per cent more than they would if world prices prevailed. Imagine also that there’s a dearth of billionaires, so prices matter, and the higher price will result in fewer players brought in from outside the EU.
Tariffs could have prevented players such as Messi, Neymar, Aguero, Sanchez or Salah from ever reaching EU clubs. If that had been the case, EU players such as Ronaldo, Hazard, De Bruyne, Ozil or Kane would not have been as good as they are, because there would have been less competitive pressure on them.
The productive potential of football in the EU would have been less than it might otherwise have been.
If the players would not have been as good, neither would the clubs, nor indeed the national teams. The economic ripple effects would have been far and wide. Trading at world prices maximises competition and ensures the highest productivity – attaining the production possibility frontier in the economics literature.
Fast forward to Brexit, and a UK outside the CET and without tariffs on any imports. The world’s best players, from outside the EU, are suddenly 20 per cent cheaper than they are now. And if we chose not to put any tariffs on players brought in from the EU either (the optimal policy), these would be no more expensive than they are now – inside the CET – either. Britain would be even more competitive and productive.
This places all the emphasis, rightly, on supply-side potential. In sharp contrast, worrying about whether or not you’ll be able to sell your players into the EU at existing prices is very much a demand-side emphasis – and misguided.
Post-Brexit, trading at world prices means that teams raise their performance, and the players are worth more because they have performed at the highest competitive level. This illustrates Say’s Law, which states that aggregate production (supply) necessarily creates an equal quantity of aggregate demand.
There’s another link between football and tariffs. A tariff on players is similar to imposing quantitative limits on the number of players who aren’t English in any squad. It’s called infant industry protection in the economics literature, but economic history teaches that competition works best of all.
The world’s best footballers understand more about what makes economies successful than most of our politicians. If MPs said that they wanted to boost English football by restricting foreign competition, they would be laughed out of town. But that is exactly what remaining in the customs union would mean.
Perhaps if there were tariffs on footballers from outside the EU, people would understand better the case for getting rid of all tariffs.
We understand the overwhelming benefit of open markets in football – why can’t we for Brexit?
To read Graeme’s piece for City A.M. in full, click here.