View from Dublin: Be­ing free to en­ter mar­ket­place just the be­gin­ning

Belfast Telegraph - Business Telegraph - - Economy Watch - BY BREN­DAN KEENAN

IT is al­most 30 years since French com­pany Pernod Ri­card bought whiskey-maker Ir­ish Dis­tillers and sales of Jame­son are boom­ing. An­other overnight success.

This is what trade in a so­phis­ti­cated prod­uct means. All that French ex­per­tise, global dis­tri­bu­tion, money and mar­ket­ing skills — and it was still three decades be­fore the long-awaited re­dis­cov­ery of Ir­ish whiskey takes place.

It is a mat­ter of be­ing ready when the cy­cle of con­sumer taste turns, helped on its way by some ju­di­cious, and ex­pen­sive, mar­ket­ing. Be­ing free to en­ter the mar­ket is only the be­gin­ning.

Cur­rent pol­i­tics are break­ing all known records for non­sense but the stuff on trade and “free trade” prob­a­bly heads this de­press­ing list. Those pol­i­tics rely a lot on wheel­ing out the is­sue the politi­cian wants to talk about, so as to avoid the oth­ers. I like to call it “mak­ing smoke” af­ter the tac­tic (be­fore the in­ven­tion of radar) of war­ships hid­ing them­selves be­hind col­umns of spe­cial thick smoke from their fun­nels. In the case of Brexit, trade is the UK gov­ern­ment’s cho­sen smoke.

There are a few things more im­pen­e­tra­ble than the ap­par­ently sim­ple busi­ness of trade. Not least of the dif­fi­cul­ties is that the ar­gu­ments in favour of trade go against com­mon sense. Bet­ter surely, to make things at home than buy them abroad? Not so, says the main line of eco­nomic thought — as in much eco­nomic the­ory, com­mon sense is mis­lead­ing.

No won­der econ­o­mists’ fail­ures in the pre­dic­tion game led peo­ple to ques­tion even the the­o­ries built on past events. US Pres­i­dent Don­ald Trump ex­pounds the com­mon sense view of the per­son on the bar stool. His poli­cies will be pop­u­lar, un­less and un­til the econ­o­mists are proved right and US liv­ing stan­dards fall be­cause of higher prices caused by Trumponomics.

The Bri­tish gov­ern­ment po­si­tion, on the other hand, flies in the face of both com­mon sense and eco­nomic the­ory. It says, in ef­fect, that there is some­thing in mem­ber­ship of the Euro­pean Union which holds back its trade with the rest of the world. The im­pli­ca­tion is that the EU’S trad­ing re­la­tions with the rest of the world are so re­stric­tive that a coun­try on its own could do much bet­ter.

No re­motely con­vinc­ing ar­gu­ments are ad­vanced as to why, or how, this is so. All that could be said is that the UK’S trade with the US and China com­bined is half its trade with the EU. It is not ex­plained how this non-eu trade is to grow so rapidly that it will be able to off­set any losses in sales to the EU and still in­crease Bri­tain’s to­tal global ex­ports.

As the Jame­son story shows, mod­ern trade does not work like that. An­other les­son comes from the UK ex­per­i­ment with a cheaper pound af­ter the crash. Currency move­ments are more im­por­tant to busi­ness than tar­iffs. They can be just as large, or larger, and may hap­pen at any time, whereas tar­iff ad­just­ments are rare.

Yet the ef­fect of ster­ling’s falls af­ter 2011 was seen in higher prices, with in­fla­tion reach­ing 5%, rather than a re­duc­tion in Bri­tain’s trade deficit. Prices rise quickly and the deficit falls slowly, if at all.

The Bank of Eng­land now ex- pects ex­actly the same to hap­pen if ster­ling con­tin­ues to weaken. In­fla­tion is al­ready climb­ing and, with wages sub­dued, the fall in pur­chas­ing power could grow.

Mr Trump’s pop­ulist poli­cies ex­pound the com­mon sense view of the per­son on the bar stool could rad­i­cally al­ter the Brexit de­bate.

Over here, we like to point out that UK’S ex­ports to Ire­land are about half the €45bn (£39bn) to­tal to the US, and more than those to China, but few seem to no­tice. It is also a fifth of UK trade with the whole EU, even though the Ir­ish mar­ket rep­re­sents only 2%.

It will be a long time, if ever, be­fore Bri­tish firms make up for the dis­rup­tion to their Ir­ish sales and pur­chases by ex­pand­ing in other mar­kets or find­ing new sup­pli­ers.

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