Monday, 12 June 2017

Geographical proximity is important for trade?

On the question of Brexit, a popular idea promoted by remainers is that it’s important to have tariff free or near tariff free trading arrangements with nearby countries, and less important to have such arrangements with geographically more distant countries.

Well the first weakness in that argument is that the UK’s trade with the EU, as a proportion of its TOTAL trade has declined 10% over the last decade: not surprising, given that the large bulk of economic growth in the last decade has been in China, India, etc rather than in Europe.

As distinct from that, UK trade with Europe did rise substantially after the UK first joined the EU: a fact which remainers completely failed to publicise far as I can see, before the Brexit referendum.

However, another major flaw in the “geographical proximity” argument is called “Australia”. Australia is geographically very isolated from the main centers of economic activity on planet Earth. But for some curious reason, it manages to maintain a very acceptable standard of living.

In fact I’ve just made a stab at working out the average distance Australian imports and exports travel, and according to my calculations, the average is around six thousand miles. My source for the proportion of Australia’s exports and imports going to and coming from different areas of the world was these Australian government figures. I used the 2016 figures.

Now on that basis, and making the admittedly over-simple assumption that potential trading partners are evenly distributed around the globe, the UK does not need to do ANY TRADE WHATEVER with the EU.

But even more hilarious is that Lagos in Nigeria is a mere three thousand miles from London, and Moscow is a mere 1,500 from London.  So not only does the UK not need to trade with the EU: it doesn’t even need to trade with the whole of North Africa or the bulk of Russia!!!

Looks like the “geographical proximity” argument is a bit of a nonsense.

And finally if you want to know which way I voted in the referendum, I voted for Brexit, but with significant reservations. I.e. I thought the leave versus remain arguments were pretty evenly matched.

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