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Transforming Britain’s Trade Partnerships

by John Brian Shannon | July 25, 2016

Every day of the year, we teach others how to treat us.

If we consistently demonstrate that we’re reliable, we teach others to trust us. If we demonstrate that we’re untrustworthy, we teach others to avoid us.

And so it is with nations; By virtue of their policies and procedures and by their other actions, we teach the leaders of other nations and their corporations how to treat us, how to deal with us, or give them reasons to avoid us.

Pretty simple stuff. We learned this in kindergarten.

But sometimes we get so busy working in our business we forget to work on our business, and that message can lose place.

In the interdependent world of the 21st-century, the highest priority for British Prime Minister Theresa May and her ministers must be to work on our business and not get wrapped up in the daily routine, and thereby lose place.

The government of Theresa May is off to a good start and it’s too early to draw conclusions about her future economic policy, but governments of the past have ranged from inspired to dreadful in regards to steering Britain’s economy.

The United Kingdom is the 5th-largest economy on the planet. Let’s not lose that.


Partnership

We need to trade with stable regimes, it’s better for market certainty. They want us to be economically certain. We need them to be economically certain. In fact, economic uncertainty is our enemy and theirs.

Therefore, interdependence and symbiotic relationships will work best for us and for our trade partners.

If we ensure that engaging in trade with Britain always works to the advantage of our trade partners, we will teach them that more trade with us is their goal.

In this way, our trade partners become our best sales and marketing force. Handy, that.

Using Import Tariffs as Revenue Stream

Minimal standardized tariffs can offset government budget imbalances and balance of trade issues — and that applies not only to Britain, but also to it’s trading partners.

As a general rule, Britain should engage in free trade with every country and charge a standardized 5% tariff on every good that is shipped to the UK. And all countries that trade with Britain should likewise institute a harmonized 5% tariff.

Q: Why would Britain want foreign governments to charge a 5% tariff on British goods?
A: Each $1 billion dollars of British export earns that foreign government $50 million dollars in (import) tariff revenue.

But why would foreign governments shoot for British exports of only $1 billion per year / $50 million tariff revenue when those governments could collect $600 million in tariff revenue on $12 billion of exports from Britain?

Or ten times that amount. Let’s hope.

Easy Money

Therefore, the higher the gross total value of imports arriving from Britain, the more dependent the foreign government will become on that revenue. Which means they won’t want anything interfering with that simple and easy tariff revenue stream!

“Can you please continue to export to my country?”

“Why yes…  yes we can.”

Anytime the UK government wants to increase exports, all it must do is ask each foreign government representative this sort of question:

“How would you like to be responsible for bringing home $600 million per year in tariff revenue, instead of the present $50 million per year?”

It’s so easy when they do the work for you…


Transformation

By asking for the cooperation of our trade partners in this manner, not only will UK exports realize a manufacturing boom, but the partner nation will see a tariff revenue boom — and that’s interdependence taken to the next level.

Symbiotic trade relationships become the path to prosperity for both partners.

If Britain does this, and does it well, every country in the world will become a highly motivated salesforce for British goods — your trade partners are practically marketing Britain’s manufacturing sector for you.

As the price of each imported item increases by 5%, it will spur domestic demand on account of UK-produced goods not having a price rise due to a 5% tariff.

In that way, domestic production will increase, which has several positive influences in the overall British economy; UK-produced goods will be incrementally cheaper in comparison to imported goods, increasing consumer demand for UK-produced goods, causing UK manufacturing sector unemployment rates to fall, and consequently the government will lower it’s unemployment insurance expenditures and receive higher income and sales tax revenue from those now-working citizens.

And that’s not all

In addition to those positives; The UK government gets a new revenue source to augment it’s spending programmes. In the UK, this translates into more funding for Britain’s highly-ranked National Health Service (NHS) and makes deficit-reduction a reality for the Exchequer.

Since the global financial crisis, the UK government has in addition to running a mild austerity programme, also run high budget deficits (8.5%) which simply accumulate as government debt — and that’s the last thing the country needs as the UK’s debt-to-GDP was already too high prior to the financial crisis of 2008.

Global Debt Clock for Britain 2015. Image courtesy of The Economist's Economic Intelligence Unit

Global Debt Clock for Britain 2015. Image courtesy of The Economist’s Economic Intelligence Unit.

But with billions in tariff revenue helping to fund UK government operations, not only would deficits disappear and high public debt taper, there would be enough revenue left over to fund the ‘shovel-ready’ infrastructure projects that are unemployment-reducers, job-creators, and income tax generators for the country.

In economics, that is known as a virtuous circle. Which is a very wonderful thing.

Economists win Nobel Peace Prizes for engineering virtuous circles. Yes, it is that big a deal.


Investment

Tariffs should be seen by Britain and it’s trading partners as revenue generators.

Revenue from tariffs can fund deficit elimination, debt repayment, infrastructure and job creation or whatever gives the UK economy the best bang for the buck at that time.

Growing economies attract a lot of attention — the good kind. And every investor wants to invest in a winner.

By designing our economic fundamentals to mesh with the present economic moment, the UK could enjoy an almost unprecedented economic boom courtesy of the virtuous circles deliberately engineered into Britain’s economy.

Delivering on that goal should be our highest priority.


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