We will export less. There will be less competition. Prices will be higher and productivity lower. Textbook economics tells us that trade friction – that is anything that makes it harder for goods or services to flow across borders – is a very bad thing. So why is the British Government suddenly accepting trade frictions with the EU?
As chief Brexit negotiator David Frost made clear in his key speech yesterday, the UK is willing to accept some restrictions on trade with the rest of Europe if it has to. The answer? Because they are not necessarily as bad as the textbooks predict and the prize is a big one.
True, in an ideal world we would have completely free trade with the EU. There would be no tariffs or quotas. We would remain members of the Single Market. Our businesses could sell whatever they wanted anywhere in the EU without any restrictions and their firms could sell whatever they wanted here.
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