The value of manufacturing
Background
From evidence archaeologists have found in the earliest burial sites, it is clear that even primitive people made and traded valued objects. This useful habit has developed into the international trading system we now enjoy, which is controlled by the World Trade Organisation (WTO). However if a country’s imports and exports are not kept in a rough balance, debts will build up for countries importing more than they export. Small debts can be cleared by borrowing over the short-term from an international bank. Large debts, like the UK has, have to be kept under some sort of control by borrowing huge amounts, resulting in large interest payments every year, which are a continuous drain on the country’s economy.
While the UK had more than enough North Sea oil for its use at home, it exported large amounts at raw material prices. This helped to balance the imports. However Germany, for example, turned our oil into plastics and pharmaceuticals and sold these items back to us, so the benefit of our exported oil was reduced. If we had turned all our spare oil into plastics and pharmaceuticals and exported these to other countries, the value of this oil would have been increased and could have resulted in a positive balance of trade instead of the large deficit we now have.
Georgie’s tale
I try and bring my family one or two mice every day. I think this is only fair because they buy me very nice food, which I couldn’t pay for, and they don’t have the time or skill to hunt mice for themselves.
Garfield’s reply
That’s a good example of balanced trade within the UK. However if you wanted to help with the balance of our trade abroad, you could join a co-operative of cats and you could export surplus mice to Canada in return for the imports of Purina cat food for example.
Now the North Sea oil and gas are running out, the UK doesn’t have many raw materials left to export, but we still need to import a large amount of goods from round the world, which include food we cannot grow here, goods we do not make here and gas to replace the oil and gas that are running out. We will always need some food imports, but we could make many of the manufactured goods we simply import. Every imported manufactured item costs us twice or even three times at present, because we have to borrow and pay interest to buy it and we are not giving people the chance to work in this country to make it.
Our trade with the EU is out of balance. We buy from them much more than they buy from us. However our trade with the rest of the world is largely in balance. Free from the EU we could trade under the World Trade Organisation rules with many more countries and still sell to the EU countries, stimulating our manufacturing businesses in the UK and reducing our huge balance of payments deficit.
