Britain has a chance to slash tariffs after leaving Europe — assuming voters will pay the price
We’ve got the wrong kind of snow. Usually the snow that falls in Britain and Europe is very different from the stuff we’ve seen this week — wetter, heavier and quicker to melt. This snow — a dry, light, Siberian variety — is far fluffier and stays on the ground a bit longer. The difference might seem trivial but, strange as it sounds, such things are the stuff of trade wars.
Back in the 1980s, Japan introduced new “safety standards” for snow equipment: skis had to be thicker, wider and heavier because, its trade representative explained, Japanese snow was much lighter and drier than the European kind.
He might have had a point about the snow — the slopes in Hokkaido are generally fluffier than the Alps — but this was really just another example of protectionism. Ski manufacturers in Japan were struggling to compete with their European rivals; lo and behold those new product standards effectively banned EU skis from the country until the rules were overturned by the precursor to the World Trade Organisation (WTO).
The lesson is that it is possible to turn any excuse — even the shape of a snowflake — into a trade barrier. And throughout its history, Japan has done precisely that. At one stage it attempted to justify limits on beef imports by arguing that the average Japanese person’s intestines were shorter than those in other nations.
These days Japan’s trade barriers range from the straightforward — quotas on imported rice and the developed world’s highest agricultural tariffs — to the obscure. Unlike many other countries, including Britain and the US, Japan has no tariffs on car imports. Yet the market is so difficult to break into that a couple of years ago Ford pulled out altogether.
Trying to explain why is fiendishly hard. Some put it down to Japanese car safety tests; others ascribe more prosaic explanations. Any car taller than 1.55 metres will not fit into many Japanese car parks; same thing if it is too wide. These days BMW adjusts the suspension on some of its Japanese exports to make them lower and fits special door handles to its 3 Series cars to make them narrower.
Which of these is a trade barrier? The question is worth asking because old-fashioned trade tariffs are on the way down while obscure barriers such as these are proliferating. Japan is far from the worst culprit: the WTO reckons that the number of non-tariff barriers around the world has doubled in the past decade. While Japan has an estimated 1,523 barriers, the EU has 2,049 and the US has a whopping 5,014 and rising. Even before the election of Donald Trump, protectionism was on the increase.
The flavour varies depending on where you are. In Japan and Korea the rules tend to trickle down from government. In Europe they are often imposed by bureaucrats. In the US they are written by business lobbyists.
Pretty much every long-running plan to bring these barriers down has failed in recent years. The WTO‘s Doha Round, aimed at lowering tariffs and barriers worldwide, is effectively dead. America has forsworn planned trade deals with Europe and the Pacific rim — though the latter deal, TPP, may go ahead without it.
Does any of it matter? Well, consider the fact that economies like ours are facing a productivity crisis. The amount of income we generate for every hour worked is flatlining. There is no straightforward solution, but the fact that trade restrictions make it more difficult to sell your goods overseas hardly helps. The International Monetary Fund (IMF) has calculated that if rich countries removed the tariffs on their imports they would enjoy a 1 per cent bump in productivity — easily enough to shock us out of our malaise. The jolt would be even bigger if we removed all those non-tariff barriers too.
If this argument sounds familiar it’s because it was used last week by the pro-Brexit lobby group Economists for Free Trade to explain why we could be even stronger outside the EU than inside. Such arguments are portrayed as entirely reasonable when they come from the IMF, but the Brexiteers’ forecasts were met with widespread ridicule. While one can understand why — their workings relied on all sorts of unlikely assumptions about what politicians and the public would endorse, many of which were pure fantasy — their logic was perfectly sound.
And it raises an awkward question: is Brexit protectionist or not? The answer depends on who you ask. No, says Theresa May: outside the EU, Britain will be even more open to the rest of the world. Others point out that there are few more protectionist moves a country can make than abandoning a free trade zone.
The simple answer is that we do not know yet. Do Britons want to remove all the barriers keeping the agricultural sector solvent? Are we OK with having our major services, including the NHS, provided by foreign companies? How about if this means net immigration going up rather than down? The problem we face today is the same one we faced two years ago. We have voted for a departure without a destination.
Ed Conway is economics editor of Sky News