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