The Customs Union contradiction in a nutshell

Further to Brian’s post on the border fudge, an example I came up with last night…

Nobody in the United Kingdom makes red widgets. Which is unfortunate, as the UK makes lots of white and blue widgets. (boom boom)

China makes red widgets (and some yellow ones.) Britain reaches a free trade agreement with China that involves no tariffs on red widgets (the puns shall continue until morale improves.)

The EU’s agreement with China imposes a 30% tariff on red widgets. This can now be got round by manufacturers sourcing their red widgets from the UK, which actually means China.

In order to stop people circumventing the direct tariff on Chinese widgets, the EU therefore has to impose a 30% tariff on red widgets from the UK.

And that’s it.  As soon as it’s possible for importers in the EU to circumvent EU tariffs by buying indirectly through a third country, the EU has to safeguard itself by imposing tariffs on the middleman. And the only way to prevent the smuggling of red widgets is… border checks.

Some will say protectionism.  Yet the failure of the British Government (and others) to support increased EU tariffs on Chinese steel led to the Chinese steel dumping crisis of 2015 with deleterious effects on steel manufacturing in Britain.  The consequences of failing to protect were laid bare in that case, and there was a cost in jobs because the open market could not compete with artificially cheap products – but cheap for how long?

One could compare this with the Bombardier fiasco, where Boeing appears to have been attempting to secure a monopoly in the US domestic market by getting rid of a significant but indirect competitor.  Protectionism working against the market, with the threat that when a monopoly is secured, prices can rise again because the competition has been eliminated and the market has no choice.

It goes without saying that inefficient industry can only be sustained for so long (British Leyland, anyone?) but protectionism will and must always be invoked by countries to prevent predatory practices that in the long term will only damage the market.