Once more into the breach on Brexit and trade

The Cabinet has been told that Brexit will be bad for trade, very bad. The problem here is that the sources of this information are the same scaremongering reports that were passed around before the referendum, those reports that were part of Project Fear. And the current precis of them doesn't include the most important part of the Treasury report, which is the mechanism by which trade makes us richer in the medium to long term.

The Cabinet is thus being feed information that is not entirely and wholly true: 

Cabinet ministers have been given detailed warnings that the UK pulling out of the EU customs union could lead to a 4.5% fall in GDP by 2030 and the clogging up of trade through Britain’s ports.

The predictions were contained in a paper circulated at a meeting of Theresa May’s special Brexit cabinet committee, which concluded that ministers were not yet prepared to decide whether the UK should withdraw from the EU’s free trade bloc.

The 4.5% cut is the average prediction made in three studies that were carried out before Britain’s EU referendum, in a move that could anger Brexit supporting MPs who believe that the old estimates are out of date.

To get to this result people are just doing sums. Exports are positive in GDP, imports negative, add up what you think the volumes of them will be and there's your answer.

But the Treasury report itself was very clear that this is not the medium nor long run effect of trade. Rather, there, the real effect is upon the productivity of domestic producers.

It's only the top 10 to 15% of companies, or producers, in any economy who partake in international trade. Why ship mediocre goods half way around the world when there're plenty of local mediocrities to be dealing with? Imports thus represent competition from the most efficient producers in the world - being exposed to such competition means that local producers either buck up their own productivity or they go bust.

Imports thus boost local productivity - and as Paul Krugman has said, productivity isn't everything but in the long run it's pretty much everything. Increased productivity is the very thing that makes us richer.

The sums being done in these reports do not take account of this effect. They are, essentially, doing sums not economics.

When we do economics, and take account of this effect, then we get to Patrick Minford's result. Assume that our exports face the usual WTO barriers. But that we offer unilateral free trade on imports to us. This exposes the British economy to that productivity enhancing competition from the best of the whole world's producers, not just those from the rather sclerotic economies of mainland Europe. The net result is a 3% addition to British GDP in this timescale, rather a far cry from the 4.5% contraction given here.

Which leaves us with a rather important point. The effect of Brexit upon trade and thus GDP is an economic question. We should therefore be doing economics in trying to answer it, not just sums.