Since the British parliament rejected the British Exit plan proposed by the previous prime minister Theresa May, and the Europeans are unlikely to agree to a plan that is less restrictive on the United Kingdom, the path of least political resistance may be a “no deal” or “hard” Brexit.
Such an exit would be especially hard on the border between Ireland and Northern Ireland, which under the European Union has been free of trade barriers. The enactment of tariffs and other trade costs and restrictions could reignite the conflict between the two areas.
Tariffs impose higher costs on consumers, reducing national well-being. The best policy for the British people would be the complete elimination of tariffs. If other countries seek to impose tariffs on their populations, that reduces the productivity of British exporters, but British industry will adjust to production that adheres to the economy’s comparative advantages. There is no good economic reason for the UK government to harm its population with taxes on imports.
With that policy, goods exported from Ireland to Northern Ireland would be free of tariffs. The UK should at the very least make an agreement with the European Union to have British exports not be subject to tariffs at the border with Ireland. All British goods shipped to Ireland would be free of tariffs. This would apply only to British-made goods which are consumed in Ireland, and not re-exported.
The European Union would most likely agree to a non-tariff border between the UK and Ireland, otherwise Ireland could also secede from the EU and have a free-trade agreement with the UK.
With the UK out of the EU, the UK would no longer be required to have a value-added tax. The best policy for the UK would then be to replace its VAT with LVT, a land-value tax. A tax on land value would have no economic burden, since the land will not shrink, flee, or hide when taxed. Eliminating VAT would in effect remove an internal tariff on goods, and that would more than compensate for any higher tariffs imposed abroad on British goods.
Even if VAT is not eliminated, a minimal treaty providing for free trade between Ireland and the United Kingdom should be promoted if no wider deal is reached.
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FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.
Foldvary is the author of The Soul of Liberty, Public Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.
Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.