RE: Oops - Lord Stevenson of Balmacara7 Mar 2019 06:51
EMBRACING free trade would limit the damage caused by a no-deal Brexit, give a bounty of cheaper imports to consumers and strengthen Britain’s hand in EU negotiations, according to top German economists.
Slashing all import tariffs after Brexit would cut costs for households and businesses, giving the economy a boost, the Ifo Institute said in a new report, calling this model a “hard but smart” Brexit.
At the same time it would rebalance the power around the negotiating table, which is based on a no-deal Brexit harming the UK because it would involve it imposing WTO taxes on its own consumers.
The EU has used this to its advantage. However, Britain is free to scrap these taxes, freeing itself from this damaging trap, the Ifo said.
“In the case of a hard Brexit, would the UK really apply the high EU external tariffs and carry out elaborate physical checks at the borders? Most studies on the economic effects of Brexit go away and come to the conclusion that hard Brexit is much more expensive for the UK than for the EU,” said the report, written by Gabriel Felbermayr, director of the Ifo.
“But such a strategy would be hardly rational for London and technically perhaps not feasible. By contrast, the UK would unilaterally abandon all new barriers with a ‘hard-but-smart’ strategy. This fundamentally changes the negotiation situation.” By throwing open the borders, he believes the costs of Brexit would be almost completely mitigated. Instead of charging new taxes on the two-thirds of Britain’s imports that come from the EU, this would mean cutting taxes on the one-third from elsewhere. Instead the only cost would come from the EU’s decision to impose tariffs on its own imports of British goods.
This harms both sides by a roughly equal amount, the Ifo found. The report comes after it was revealed the Government was considering slashing tariffs on as much as 90pc of imports after Brexit.
Ifo economists estimate their “hard but smart” deal would mean Brexit costing about 0.5pc of GDP for the EU and for the UK, with a similar cost on the German economy.
Meanwhile, Ireland would be hit far harder with a loss of more than 5pc of GDP – 10 times the hit to the UK – because it would have to impose a hard EU border on its imports from Britain.
By contrast, leaving with no deal and imposing WTO tariffs would cost Britain closer to 3pc of GDP.
“There would be no supply shortages because all goods and services would simply be waved through,” said Mr Felbermayr, noting that EU rules match UK standards now and will change little in the short term.
“There would also be no traffic jams on the French side of the English Channel or in Ostend; the snakes would be on the British side, caused solely by the EU, which is barely more prepared for customs clearance than the British.”
The overall benefit to Britain would pile pressure on the EU to quickly agree a free trade deal, the Ifo believed.
Never mind eh DCB ?
Sign In
Follow the stocks
