No Deal Brexit

This is what I understand will happen under a No Deal Brexit. I have not contributed much to this debate because I am no expert, which will be self-evident when you read on, and I look forward to those with more knowledge than I have putting me right where I am wrong.


Currently, we have no trade agreement with any other country. Because we were under the EU umbrella, we relied upon the trade deals that the EU has negotiated with the rest of the world, and obviously, we did not need a trade agreement with the EU. When we leave the EU, we have to start negotiating deals with the rest of the world (including the EU). Until those are complete, we have to apply the tariff rates laid down by WTO rules. There are pages and pages of them so I will not bore anyone by listing any rates. Conversely, our exports will be governed by WTO rules as well, so every other country in the world will apply those same WTO tariff rates to our exports.


It is important that we all understand that in trade deals with other countries, all countries will all be looking for a good deal and these tariffs will apply pressure to both sides. Nevertheless, no country will want to sign any agreement where they perceive they will be losing out. Therefore, these deals can take years to negotiate, with ground being given by both sides. That will mean that the cost of our imports will rise by the amount of the tariff that our government has had to levy. This is bound to increase the cost of living (inflation).


Conversely, our exports of manufactured goods in particular will become more expensive in the importing country. This will mean that at a stroke, our exports are uncompetitive in the importing country. Our exports of manufactured goods will decrease as a direct result of the tariffs that the importing country has to levy. This is bound to mean that our exports of manufactured goods reduces. How does a UK manufacturer react to an increased cost of imported raw materials and a fall in the sales due to the reduction in sales to the export market? Well, logically at the very least, a manufacturer would have to reduce costs. He has to reduce the numbers he employs.


But what happens if the manufacturer makes cars principally for the European market. He imports parts from Europe which have a tariff added, and he exports finished cars to Europe, which have a tariff added. Of course, he also buys parts from UK suppliers as well, so the tariff paid on raw materials is not on everything that goes into a car, and his assembly costs are mainly UK employee costs, but the new tariff that the EU applies to imports from the UK mean that UK car manufacturing is suddenly uncompetitive in the EU. OK, cars manufactured in the EU are less competitive in the UK as well, but the EU market is far bigger than the UK market, so even if UK manufacturers took up the slack of cars not coming in from the EU, they would still be manufacturing fewer cars. Production lines cannot be speeded up and slowed down according to demand because they become inefficient, so what does the multi-national manufacturer of cars in the UK do.


Well, what I would do is move production to the EU because the size of the EU market as compared to the UK market means that I would lose fewer sales that way. Remember that we are not just talking about the car manufacturer. We are talking about all the UK suppliers of part to that manufacturer. It is a huge number of jobs that are potentially going to be lost.


What happens when an industry closes down? Well, here in Barnsley, we do not need to use our imaginations on this because we went through it. There are no jobs for those made redundant because the whole industry that those workers served and are skill in has closed down. Those workers become long term unemployed, and the government pays them a fraction of what they used to earn in paid employment. They lose their self-respect as well as their income. The area in which they worked relies on government grants to try to replace those lost jobs, but there is no longer an EU fund to subsidise the replacement of those jobs. Even if those the jobs are not suitable for the workers displaced, at least they are jobs that supplement the income of the local community. Now the community is reliant upon the UK government to do that, a government that is already borrowing heavily to pay for the benefits they are paying to the unemployed. A government that is facing a recession of its own making and is trimming its costs as a result.


There is no doubt that our economy has to modernise. There is no doubt that our economy needs to concentrate on services and high technology applications. There is no doubt that many are left behind when that change comes, that an aging shop floor worker cannot be retrained in writing software applications for mobile phones for example. Many of us remember when Thatcher orchestrated such a change. The problem that I have is that our PM is cultivating the support of just the sort of people who are going to be worst affected by the whole process of change. They are supporting Boris because they are supporting a past decision (to leave). They are not prepared to review that decision now we have more information and the original circumstances that caused them to make that decision have changed. In the case of this region, and in the case of most manufacturing regions of the UK, they are leaving behind their Labour roots in order to support a Conservative party that has played them for fools in the past. They are being lied to, and they are swallowing it without question because they are convinced that those who are arguing to stay are doing so just to frustrate their democratically expressed wish. They have not been listened to in the past, and it is happening again. It is illogical on so many levels

 

Nailed it

 

You don’t need to be an expert, you just need to apply reason and common sense, and you’ll come to the points you’ve made very well.

The thing I’d add, the losses of jobs you’ve outlined are largely signed off in big business. They are merely waiting for the official outcome to enact them. The key ones I’ve seen are service industries largely, professional services too. When they cut and cut hard, you know gdp is in line for a big dip.

 

Don’t be coming on here with your actual facts an’ that. We’ve had enough of facts. With some good old pluck and British spirit we will be fine.

 

Ever thought of running for PM?

 

Thing is RedRain, it doesn't matter to most Barnsley folk that voted leave and still champion it. It doesn't matter to the thick, ill informed cretins that demand we leave without a deal on a daily basis because "they won". That's all that matters. "They won" and, despite the fact they, the ordinary person, will be the worst affected, "they won" so any rational argument against can go hang.

 

Yep, that's democracy for you.

You let those ill informed cretins vote to see whether we stay or leave the EU.

Then we let the same ill informed cretins vote to decide who represents us in Parliament.

 

Yeah, but blue passports!

 

Cab we go back to pounds and ounces,

 

I think Churchill made a famous, and pretty perceptive comment, about democracy.

 

All well and good if Labour was actually what it said on the tin as well.

 

??? Wrong thread?

 

There are large sections of our society who argue that it will not affect them. When there is a large fall in GDP, it affects everyone. Not only do government tax revenues fall but government spending upon benefits increases. How does a government faced by that scenario react, after all, successive governments have ruled out raising income tax rates on the rich because they are counter productive, and lots of studies over the years have supported this view. As a pensioner, it is clear to me what they do. They cut back on the benefits that they pay out and they borrow to cover any short fall. But what do these things do to our economy?

Well, the cut backs in spending on benefits once again hit the self same people who Boris is actively trying to attract away from Labour, the people who were flocking to him in Wakefield yesterday, and who were telling him what a great job he was doing, encouraging him to stick with it. The ones who have not rethought their position or reassessed whether they can trust a Tory, and particularly, that Tory. The government is confident that it can borrow, after all, money is cheap just now because no-one wants to borrow, business does not want to borrow because it is uncertain about the future. But if government suddenly starts to borrow heavily again, what happens to interest rates. Do they not work on the principle of supply and demand too? The thing is that the banks/building societies simply act as a clearing house for money. They pay interest to lenders and charge borrowers. Their profits come from the mark up in the two rates. When there is more demand for money, they increase interest rates to lenders so they have more money to loan to borrowers. So if there is suddenly a large increase in demand for money, the effect is clear.

So who are the people who will be directly affected by these events. Well, if you have a large mortgage, and interest rates increase, you will be affected adversely. The mortgage that you could just about afford is now beyond you. You need to find a smaller property, but everyone is in the same boat, and the bottom has fallen out of the property market. Everyone is looking to down size and no-one is looking up. Those who thought they were safe from the effects of a recession are suddenly brought into it. Of course the effects are patchy throughout the country. Everyone is affected, but areas of high unemployment that were formerly dependent upon manufacturing are affected much worse than areas dependent mainly upon service industries (London and the south east). As for those areas where the very rich live? Well, they are the lenders and suddenly, they are getting more interest on their money.

But frankly, many investors in the UK are foreign investors. Arab money which derives from selling oil and gas and which has nowhere to go at home tours the world looking for not only the best interest rates, but also the best security. A high interest rate is pointless if your borrower cannot afford the interest and will be unable to repay. Having loads of cash can also be a worry. The UK has always represented a safe haven for their money, and that safety has driven interest rates in the UK lower. But what happens when the UK is regarded as less safe because it is having to borrow more than it can afford. What happens is that the balance changes. Suddenly, the international investor wants a higher interest rate because his money is less safe. Once again, there is more pressure on interest rates. That is why I say that no-one will be unaffected by a recession as deep as that forecast by the Bank of England.

Clearly, the EU is also affected. No country comes out of this smelling of roses, but I'm afraid that the tactic of holding a gun to your own head and threatening to pull the trigger is not one that works. Mutually assured destruction has kept the world safe from the nuclear holocaust since the last world war, but is mutually assured destruction a tactic that can be transfer to trade negotiations? I do not think so.

 

That said could the EU possibly give us a better deal should we revoke article 50 or would that be classed as cherry picking? (Not anti Europe)

 

The misconception that ‘no deal’ is some kind of nuclear option we can threaten the EU with is laughable. It provides no leverage whatsoever. The EU have been prepared from the off and just shrug when our sham government start waving no deal around like an inflatable sword of Damocles.

 

It's no leverage because it won't happen in a month of Sunday's because nobody can sit round a table and agree on anything.

 

With no deal, the consensus is that interest rates will be lowered in an effort to stimulate the economy. That is against the norm, because policy is to raise interest rates in an effort to keep inflation in check. I agree with the experts here, because it would be an exceptional scenario & the root cause of inflation isn't linked to increased spending (think it's tariff-related, as you've explained).
Also, if the foreign investors no longer feel the UK is a safe haven, then they may choose to leave.
So on reflection, it could be argued that cheaper mortgages & fewer foreigners are of appeal to the Brexiteers. For me, the mortgage view isn't in the big picture, but I feel "mortgages will be going up" is a slam-dunk for anyone sniffing out Project Fear - I think your previous post was a much better case for avoiding no deal.
PS just a one off sharing of thought here, as I don't go for the political threads...drawn in by my appreciation of the minority reports