Bring on the EU trade war!

Given the UK has significant trade deficits with all the major European countries, it is difficult to believe they would want to make their exports to us dearer, explains John Redwood.

On Monday Civitas published a useful piece of research cataloguing how much money the rest of the EU would have to pay for tariffs on goods we import from them if they opt for the WTO trade option instead of wanting to carry on tariff free. I have drawn attention to this before, and have heard the figure for our tariff revenue is around £15bn, more than twice as much as the tariffs our exporters would have to pay. Civitas produced a detailed calculation which says we will collect £12.9bn of tariff revenue on EU exports to us, and will have to pay out just £5.2bn on goods we export to them.

This is of course before the adjustments you would expect as a result of these differential tariffs and as a result of the depreciation of the pound. You would expect the UK to substitute UK cars for foreign ones, UK cheese, beef, milk and other farm products for EU ones, and to keep more of our own fish, amongst other obvious targets for improvement. So as we adjust then the tariffs we receive will come down a bit – say to £10bn or twice the tariffs on our exports. Our exports are likely to go up, but we are better at non-tariff items which figure more predominantly in our export profile.

I trust the UK based motor industry is gearing up production to meet the extra UK demand that is likely. With continental cars already around 15 per cent dearer thanks to the pound, another 10 per cent on top from a car tariff should mean many more people will see the advantages of a UK built car. On the last two occasions when I have traded in my older UK vehicle for a new one built in the UK I have experienced a wait for the new car, showing they are already short of capacity. This is a great opportunity for the car makers which I expect them to exploit.

The figures show we are in major deficit with all the main continental countries on goods including the smaller ones like Austria, Finland, Slovakia, and the Czech Republic. Indeed, we only have a goods surplus with Croatia, Cyprus, Estonia, Greece and Malta, of around £0.5 bn in total from them compared to the overall deficit of £103 billion. The deficit with Germany alone is £37bn.

It is difficult to believe they would want to make these large exports to us dearer. If they do, then we will have the money to give in one form or another to our exporters as compensation for the tariffs they will pay. That will leave us several billions to the good. How would you like to spend that?