Category Archives: Economic

Britain, Economic, European Union, Government, Ireland, Politics, Society

Brexit always leads back to the issue of the Irish border

BREXIT: UK – IRELAND

ONE of the most persistent myths about Brexit is that the Irish border issue was bounced on to an unsuspecting British prime minister by her cunning – or, perhaps, reckless – Irish counterpart. According to this narrative, Theresa May signed up to the December 2017 agreement that committed the UK to avoiding a hard border on the island of Ireland without fully understanding the implications because she was desperate for a transition deal.

Yet, what has become clear since is that the necessity of avoiding a hard border on the island of Ireland matters as much to Theresa May as it does to Leo Varadkar. Just as no Irish prime minister could ever agree to the renewed partition of the island, Mrs May remains determined not to be the British prime minister who presided over the restarting of the Troubles, still less the disintegration of the United Kingdom.

The British government may have been slow – some might say shamefully slow – to appreciate what was at stake, but it is the Irish border issue, rather than the demands of business, that now drives Mrs May’s entire Brexit policy, as expressed in her Chequers proposal.

But the fact that Mrs May is no less sincere than Mr Varadkar in her desire to keep the border open doesn’t make a solution any easier.

As things stand, the Irish border is the single biggest obstacle to an orderly Brexit and the two sides are as far apart as ever. EU officials say that no progress whatsoever has been made since March in negotiations over the backstop that Mrs May agreed in December. The withdrawal agreement was to ensure that no hard border emerged regardless of the future trading relationship between the UK and EU.

The EU insists that there can be no withdrawal agreement without a functioning backstop. The UK is adamant, however, that the problem can be solved only via a framework trading relationship that makes a backstop unnecessary. Hence the Chequers plan for a “facilitated customs arrangement”, which would see the UK pursue a dual-tariff system, collecting EU tariffs on the EU’s behalf for imported goods for the EU market, but charging only UK tariffs on goods destined for the UK market; and a proposed “common rule book” covering trade but not services.

Neither side shows the slightest sign of budging. Mrs May continues to insist that the EU’s backstop suggestion would amount to introducing a border in the Irish Sea, which she says no UK prime minister could accept. Downing Street believes that Brussels is badly underestimating the degree of cross-party support for its position. Officials note that an amendment to the EU Withdrawal Bill tabled by Jacob Rees-Mogg ruling out a customs border in the Irish Sea was accepted by the House of Commons without a vote. Downing Street argues that the only way to unblock the situation is for Brussels to drop its opposition to Chequers.

EU officials have countered and have said Mrs May is underestimating opposition to her proposals across the European Union. Brussels is also baffled by the UK’s position on the backstop. EU officials have pointed out that some checks already take place at Northern Irish ports and airports and that the EU’s proposal simply would build upon them. Indeed, civil servants in Northern Ireland produced a draft paper this year in what they dubbed a “Channels” approach, under which goods entering Northern Ireland from the UK could pass through either a red or green channel at ports or airports depending on whether those goods were destined for local consumption or export to the EU. Such a system would depend on some level of risk-based checks combined with appropriate documentation, cross-border cooperation and tough penalties for infringements. The paper concludes that such “a pragmatic extension of present reality . . . seems infinitely preferable to a return to the border of the past”. Yet the UK government has blocked publication and refuses to share with Brussels any underlying data on volumes of goods entering Northern Ireland.

Of course, how this situation plays out will in part be determined by how all sides perceive the consequences of a no deal. Both the UK and Ireland would be hit hard economically. The IMF estimates that both would suffer similar hits to GDP of about 4 per cent by 2030, although Ireland’s far higher rates of growth would make such a shock easier to absorb. British officials believe that Mr Varadkar would pay a political price because he has done little to prepare public opinion for the prospect of the EU at some point obliging Dublin to start introducing customs and regulatory checks at the Northern Irish border, something Britain has said it would not do. But while Dublin is convinced it would win any blame game, the bigger risk may be to the UK. After all, the case for allowing the people of Northern Ireland to decide their own fate before any border checks were imposed and as provided for under the Good Friday Agreement would surely be strong. A recent poll published earlier this month suggested that a majority of Northern Irish under such circumstances would vote for reunification by a margin of 52 per cent to 39 per cent.

The risk for Mrs May is that the very outcome that her entire Brexit policy has been seeking to avoid will have come to pass. A political paradox if there ever was one.

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China, Economic, United States

America’s economic battle with China risks global slump

GLOBAL ECONOMY

PRESIDENT Trump continues to show no mercy in his dealings with China. Emboldened by the robust American economy and the continuing rally on Wall Street, Donald Trump is convinced that tariff barriers will do more damage to Beijing than Washington, and that eventually his approach will force concessions.

The U.S. President’s decision to impose a 10 per cent tariff on £150bn of goods from China means almost half the products shipped from the People’s Republic to America – with the notable exception of some Apple items – are subject to tariffs, raising prices for US businesses and consumers.

These new measures are in addition to the £38bn of tariffs imposed in July and August.

China, led by President Xi Jinping, lost no time in retaliating by finding another £45bn of US goods to penalise. And the country’s best-known entrepreneur, Jack Ma, founder of digital champion Alibaba, said his promise to create up to 1m jobs in the US was no longer viable because of tensions.

 

DESPITE the threat of higher prices for Americans on goods ranging from textiles to electronics, Trump’s tough line will play well in “rust-belt” states as the Republicans seek to seize back the political initiative ahead of November’s mid-term elections.

The White House’s choice of trade as a weapon to curb Chinese influence and expansionism has been met with horror by the International Monetary Fund in Washington and the World Trade Organisation (WTO) in Geneva.

The Organisation for Economic Co-operation and Development (OECD) have also joined the chorus of critics, warning that world economic output was “hitting a plateau” because of US-China trade wars and fragility in emerging markets.

As the apostles of free trade, it argues that much global prosperity, notably in Asia and emerging markets, has been built on an open trading system.

The Great Depression of the 1930s was the result of nations imposing ever-higher barriers on vital trade such as commodities and farm produce. Despite the criticism there is a conviction in the White House that America’s hardline policy will produce dividends.

Larry Kudlow, the White House’s chief economic adviser, declared: “We are open to talks, if there are serious talks.” In May, China agreed to reduce the tariffs on imported American cars from 25 per cent to 15 per cent, to ease strained relations.

Mr Trump has also been encouraged to act tough after his success in bullying Mexico into accepting new rules for trading. Mexico now has to show that products it assembles contain at least 70 per cent of US content before they can move across borders.

The U.S. President has been able to take on China with some impunity because the American economy is going great guns. Growth has exceeded wildest expectations in the second quarter, at an annual rate of 4.1 per cent, creating jobs.

Farming communities have been hardest hit by Chinese retaliation, which has targeted soya bean production, pig products and beef. Trump has bought farmers’ silence with an increase of £9.1bn in subsidies.

So, what does this chest-beating machoism mean for other Western nations?

The big concern is that if the tit-for-tat war carries on for any length of time, Beijing might flood other countries with cheap goods. Complaints of Chinese dumping of cheap steel and aluminum on international markets have led to swingeing penalties being imposed by the countries where the steel is sold – while the cases are examined at the WTO.

The difficulty for Beijing is that it doesn’t import anything like £150bn of goods from the US though it can slow supply chains – such as components for the iPhone and personal computers.

The importance of better trading relations with neighbours has never been more critical. China recently sealed a far-reaching trade deal with India. In Europe, it reinforces the need for Britain to connect to the EU’s market of 500m people and not allow Brexit to damage relationships.

The biggest concern is that the US-China trade war comes at a moment of potential peril for the global economy. Rising US interest rates allied to domestic political upheaval are driving several market economies, including Turkey, Argentina and South Africa, to the brink.

When the financial inducements of Donald Trump’s tax cuts wear off and American retail prices rise – because of the higher costs of Chinese goods – economic conditions could deteriorate rapidly. The trade fracas might just prove to be the start of the next global slump.

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Britain, Business, Economic, Government, Society, Technology

The rise of automated robots is creating fear in the workplace. But why?

ECONOMIC & TECHNOLOGICAL ADVANCES

WE shouldn’t be surprised if trade union’s such as the TUC is waxing lyrical about how robots and new technology will liberate us all to work less for the same money.

After all, no less an authority than Karl Marx claimed automation would help free the miserable proletariat from their mundane drudgery.

John Maynard Keynes predicted in his 1930 Essay, Economic Possibilities For Our Grandchildren, that technology would allow people to work no more than 15 hours a week. “Three days a week is quite enough,” he opined. Keynes didn’t have any grandchildren, but if he had, it’s highly unlikely they would be basking in hours of leisure time.

Employment in the UK is at its highest since 1974, when ABBA won the Eurovision song contest and we actually did have a three-day week (but for all the wrong reasons).

Not everyone sees the advance of robots and technology in the workplace, in warehouses, manufacturing plants or even in new possible areas such as care homes, as a good thing. Fears that machines will make humans redundant or enslave us are as old as technology itself. Crackpot ideas such as Amazon’s robot-driven cage for its employees – now mercifully ditched – is an example that doesn’t exactly help.

In a fascinating speech on the future of work, Bank of England governor Mark Carney said that, in the past, machines substituted for “hands” or manual labour. Now artificial intelligence means they might replace “heads” or brain work, leaving “hearts” to people – or, in other words, work that involves emotion, imagination, innovation, caring and creativity, which could translate into more fulfilling work that adds value to the economy.

 

HISTORY tells us automation does not take away human work, but simply shifts people from one type of work to another.

One of the biggest technological revolutions receives virtually no attention from economists because it has mainly affected women. But, by making housework so much easier, the spread of domestic appliances such as vacuum cleaners and washing machines has arguably changed the workplace and society as much as the smartphone.

The idea that robots will take employment away from humans rests on the “lump of labour” fallacy that there are a fixed number of jobs in an economy, so if a robot takes one, a human being will be consigned to the dole queue. In reality, however, it is not like that. Economies are dynamic, so if robots add to productivity and growth then more, not fewer, jobs will be created for humans.

This doesn’t mean the introduction of technology will be seamless. Overall, technology may be beneficial, but individuals can and do lose out if their jobs are taken over by machines and they are not able to find alternative employment quickly.

What Keynes ignored in his analysis is that many of us, probably including himself, have workaholic tendencies and absolutely don’t want to be idle.

For anyone who wonders why multimillionaire chief executives don’t just put their feet up and enjoy their loot, think of it this way: the higher paid someone is, and the more status and admiration they glean from their work, the less incentive they have in taking more leisure time.

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