Saturday, 28 January 2017

Rip it up and start again

"Anything you can do I can do better, anything you can do, I can do too." That seems to be the current mantra of UK and US politicians. Whatever happened to humility? Of course, they can do that better, too. We need to live with this shower of know-it-alls for a few more years so let's at least try to understand what they are doing. What are they doing? Well, Donald Trump and Theresa May have decided to shred all their existing trade deals because they think they can do a much better job than those responsible for the last thirty years of global trade negotiations. You might even want to say that they intend to rip it up and start again.


Can Theresa May negotiate a better trade deal with the US than the EU's aborted attempts. Can she? Donald Trump is ripping up all US trade deals and cancelling those that are still being negotiated and ratified. The UK is doing the same with all the trade deals it had through EU membership. Both are signalling that no deal is better than the current deals on offer. After all, you would only rip up a deal if you knew that you'd be better off if that turned out to be your end position. In doing so, they are signalling that they are placing a higher value on no deal at all. It stands to reason that if two parties place a high value on "no deal" they are quite likely to choose that as the best outcome. It follows, then, that a US/UK deal is bound to fail. Now, that is quite a bold statement so let's dive in and look at it in a bit more detail.   What follows is a rusty physicist's take on trade deals, partly as a bit of fun and partly to make a point.  If you find logic puzzles tedious then I'd recommend just skipping straight to the end.  If, on the other hand, you enjoy arguments based on logic then let's celebrate Saturday together with some inequalities.

 

***Start of logical witterings***


Imagine a trade proposal P. It doesn't really matter what P represents exactly but let's just imagine for a second that it is the label stuck on a huge set of documents setting out a trading relationship between two parties. Imagine also that the two parties are called A and B. Country A has a formula to compute the value of any trade deal. It might just be a set of metrics used to weight each advantage and disadvantage of the proposal to get an overall score. To speed things up we'll use some maths notation. From now on we'll use the notation A(P) to denote the value that country A places on any trade deal P. We'll do exactly the same with B(P). No deal at all is also a kind of trade deal so both countries should be able to use their formulae to compute the value of no deal. For speed we'll denote this with A(ND) and B(ND). (ND = no deal). If a trade deal is to exist between two countries A and B then there must exist a proposal P such that

A(P) > A(ND)
AND
B(P) > B(ND)

That just says that country A and country B must both consider the trade deal to be better than no deal at all. Unless a proposal P can be found that satisfies this condition the trade deal will fail. If a proposed trade deal is only to the advantage of one party then the other will reject that proposal because they will take the view that the status quo is better. The trick is to find at least one proposal that is acceptable to both parties and passes the test. If it isn't possible to find a proposal that passes the test then there can be no deal. There are thousands of possible proposals covering all sorts of combinations of quotas, standards and legal frameworks so this might seem a bit like finding a needle in a haystack. I would guess that after a while each party starts to a get a feel for how the other estimates the value of a proposal and the value they place on no deal. That stops time being wasted on proposals that will just be rejected. Only by getting to know each other over time can they iterate towards a proposal beneficial to both parties. There might even be multiple proposals that could pass the test. That being the case, each country will haggle for the one that brings it the most advantage.

I'm getting a bit bored with these faceless countries A and B. Let's start thinking about the UK, the US and the EU. I really want to work out if there is a trade deal that the UK and US can both sign. The aim, therefore, is to consider if there exists a trade proposal P that satisfies

UK(P) > UK(ND)
AND
US(P) > US(ND)

I'm also getting a bit bored with this generic trade deal P. Let's think about the specific proposal that was the end-point of the TTIP negotiations between the EU and the US. From now on we're going to call that PTTIP. We don't know what was in that proposal but that doesn't matter because we only actually need to know that the EU walked away from it. From that we can deduce the inequality

 EU(PTTIP) < EU(ND).

Can we reason from this point and conclude that the UK would also reject PTTIP? Yes, we can. The first thing to remember is that the EU walked away because of the burden of investor-state disputes and the secretive courts proposed to adjudicate these squabbles. The UK is walking away from the EU because it now considers supranational courts far more to its detriment than it did just 12 months ago. I'd even say that being free of supranational courts is a Top 3 priority for the UK. I think it would be fair to say that

UK(PTTIP) < EU(PTTIP)

because the UK clearly hates supranational courts even more than the EU. We can also reason that

UK(ND) > EU(ND).

In fact, it is that very inequality that led the UK to tear up all its deals with the EU and all tertiary countries. I think the following inequality sums up the situation:

UK(PTTIP) < EU(PTTIP) < EU(ND) < UK(ND)

The UK should clearly walk away from UK/US trade talks if it was offered the last deal rejected by the EU or anything approximating it. Would that deal remain beneficial to the US? TTIP negotiations were quite advanced so we can assume that the US was getting somewhere relatively close to its threshold. Donald Trump, of course, has just raised the threshold. It's not at all clear that PTTIP would even be something the US would now consider. It's likely it could only offer something more advantageous to the US, something that will be less advantageous to the UK.  This US/UK deal is doomed.

 

***End of logical witterings***


What have we learned? We learned that a US/UK deal ought to be highly unlikely because both nations place a high value on no deal. A deeper examination revealed that if the US/UK negotations end up somewhere near the final TTIP proposal then the UK should definitely accept no deal as its preferred outcome. That TTIP proposal is unlikely anyway because it is likely to be worse than no deal for Donald Trump. That's right, he will only be able to offer a deal more in his favour. We need to think about the kind of deal that could ever be acceptable to a man who said that the proposed Trans-Pacific Partnership would "rape" America. Such a deal ought to be rejected even more quickly by the UK if rational processes were applied to the problem.

The UK has taken off its thinking head.
We all know that a US/UK deal is highly probable. What does that mean? It means that the UK will sign up to a deal that the EU would have abandoned as an unfavourable prospect. It means that the UK is behaving irrationally, that it can't translate its misguided intentions into actions. It means that the UK will accept secretive tribunals to adjudicate on investor-state disputes; it means the UK will eat chemically washed chicken; it means the UK will tolerate toxic shampoo and poisonous paint; it means the UK will give up the buying power of the NHS to US health conglomerates; it means US fracking companies will be granted the right to frack everywhere they wish. It means whatever Donald Trump wants it to mean because the UK has taken off its thinking head. 

This can all be avoided by voting Yes at indyref2,

Terry

PS I don't actually think that trade deals are negotiated through a numeric evaluation of their quality. Having said that, my deeply unattractive STEM mindset thinks that they could and should be subject to quantitative analysis. What you see here is how a rusty physicist would attack the problem. Having said that, it must be possible to say that deal X is better than deal Y. Without that relative assessment it would be impossible to proceed at all. In making such a decision a human mind is weighing up the pros and cons and attaching mental weights to each pro and each con. There is definitely a quantitative process at work here, one that is driven by a set of political goals and views. The only thing missing in the real world is the ability to actually write down those goals in a closed arithmetic form. In the absence of a closed form, some kind of Bayesian approach might work instead. Those functions UK(P) and US(P) are probably a bit noisy in practice and decisions are probably drawn from a statistical distribution rather than the binary choice I assumed. I just wanted to think about how these worked in "laboratory conditions" because real world complexity only clouds the basic point I wanted to make.  The basic point, of course, is that a US/UK deal makes no sense at all, given the criteria the Prime Minister used to favour leaving the Single Market.

PPS I'm going to look at some of the issues that might dominate a US/UK deal. What will the UK need to concede? What might it gain? How will it affect the balance of trade between the US and the UK? Hold on to your hats.




17 comments:

  1. Cracking post, as always, Terry.

    I think the only flaw in your reasoning is assuming that the UK is behaving in any kind of rational manner. Is it rational for the UK to leave the EU with all that entails? I don't see how it is though there is an awful lot of rationalising going on. Will the UK enter into a rational trade deal with the USA? One would hope so but with this lot at the helm who honestly knows.

    Hugh

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    1. I'm going to play devils advocate here for a bit of Saturday fun. Leaving the EU is misguided but perhaps not exactly irrational. I'd say it is irrational and you'd say it is irrational, but Leavers would say it is rational because it is the solution that most closely fits the way they balance the importance of "control" and trade. If you just hate supranational courts so much that they outweigh every positive then it could be argued that leaving the EU is a rational response to that viewpoint. The viewpoint itself is misguided (actually, we'd both say it is irrational) but the action that follows is rational. In saner times I'd expect all actions to follow to be consistent with their stated goals. A US/UK deal doesn't follow that at all.

      I completely agree that nothing the UK does right now is rational. I'd hope for a set of consistent set of political and economic objectives that would guide each negotiation. I'd hope those objectives form a coherent whole and that they remain broadly consistent over time. I might disagree with those objectives but, hey, that's politics. The Government don't seem to be guided by any kind of consistent philosophy that could be expressed or understood. That is the real heart of the madness to me. They are just floundering around trying to catch headlines. Short term popularity years from an election is clouding long term decisions.

      Tony Blair might form a good example. I completely disagreed with the invasion of Iraq and Afghanistan. For him, though, this was entirely consistent with his "third way" politics. He believed that his policy of positive intervention was another path to freedom. He even wrote to Isaiah Berlin to ask if this "third way" could be a complement to the strict binary of positive and negative liberty. Blair was completely wrong but also annoyingly self consistent.

      I've not got high hopes for a rational trade deal. Trump appears quite unhinged. He just announced that the US will have a 30 day cancellation policy on all trade deals if he thinks his partners are behaving "unfairly". Words fail me. Any partner in a trade deal can contravene the contractual obligations but that's why courts are appointed to adjudicate on disputes. What Trump really means is he wants to be able to change his mind at any point in time. Signing up to that would be entirely irrational.


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    2. Rationality has flown out of the window and is now lost somewhere at sea.
      Wasn't one of the Brexiteers bogey man arguments that Turkey would be aloowed into the EU, and now May (and Boris before her) are off there seeking deals with a poor hand to play.
      As for doing deals with Trump, again with an incredibly weak hand against his America first-ism, that's going to go well isn't it.

      PS I think I understood most of this post, and may comment again on it later after my customary hour at the pub later and having read it again. Sometimes that oils the rusty wheels of thought.

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    3. Rationality is completely lost: 3-line whips from Labour, parliamentary bills with no detail, white papers to be published only after triggering A50. I just wanted to point out another element of irrationality that I hadn't read about anywhere else: the criteria that will force us out of the EEA are being ignored when dealing with the US.

      Do come back with pub tales. I found it hard to turn my thoughts into words with this post so it might not be all that clear for any human minds other than my own.

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    4. Respecting your position as the Devil's Advocate, I would argue that the Tory obsession with external courts is simply their rationalisation of their actual position which is somehow to resurrect the Empire & return Britain to its rightful place as owner of most of the world. And xenophobia as well, mustn't forget that of course.

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    5. That is brilliantly put.

      The legacy of the British Empire does seem to hang heavy over rUK. I don't think they ever got over losing it. Although Scotland participated in it just as eagerly as the English did I think we understand that we couldn't have done it on our own and that the English got much further on their own than we ever could have. The Darian Mission springs immediately to mind. There is some kind of national humility in Scotland that seems to be absent in England at the moment. I always feel that Scotland understands it is a small country, while England sees its place as a world leader. As you say, it wants that position restored. I just can't see them being all that successful at it because of the scale of the Chinese and US economies. Countries like Vietnam and Malaysia also have huge economies now. The world has changed a lot since 1955.

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  2. Although I very much enjoyed your piece on logic, I'm not sure that rationality forms any part of what is happening here.

    A decision was made by "the people". It was a narrow decision, but 50% plus 1 has to be the rule, and I don't dispute it.

    It is true that in an unknown, but reasonably assumed to be large, number of cases, the decision was made on the basis of years of tabloid headlines irrationally overblowing (and in some cases inventing) faults in everything that the EU stands for. Of course the dreaded "foreigner" figured large in the tabloid rants and therefor the "rationale" for leaving of some of the voters.

    I have never ceased to wonder at people who whine about "health and safety" or "human rights" or an external court that could rule against a government which, the rest of the time, they rail against. Let's see how we do with out...and of course the millions of "immigrants" who work hard, contribute taxes and consume far fewer services than the press suggest.

    It seems to me that the decision to leave was taken because people were swayed by Daily Mail, Express, Star, Sun and maybe even Telegraph negative headlines over a period of 40 years, which rose to a crescendo of hatred in the months before the referendum.

    Will logic be applied to any trade deals? I doubt it. In the case of America you can hardly expect logic from Trump. He reacts instinctively as a businessman. He intends to build the USA up like he built his business empire, ruthlessly crushing whatever gets in his way, and discarding logic and morality. (After all, he can spout about bringing jobs home all he likes, but he has factories making a variety of Trump products in 12 countries where labour is cheaper than the USA.) Trump will make a business deal that suits America or rather that suite Trump.

    On the part of Britain we can expect a high level of desperation. As you and Iain Dunt (and others) have pointed out over and over again, the UK has no trained negotiators. (Ironically, taking back control may mean employing foreign negotiators to do their deals for them.) Trade deals with anyone will be better than no trade deals at all, I suspect. May has to give the tabloids something to gloat about.

    And of course when it comes to the UK's relationship with the USA, well, my reckoning is that they will accept more or less anything as long as there are joint press conferences, and Britain is allowed to feel that it is important. May talked abut America and Britain "leading the world"! (How China must have chortled.)

    America may still be at the top table as of right, but with a sweep of his hand Trump cold remove small players like Britain and France. I seriously don;t see Britain saying "no" to more or less anything that America demands.

    And the secret courts that would have brought headlines of outrage had they been European, will be downplayed.

    As you say, we have an out in Indyref2, but we must do it while we can remain a member of the EU. Heaven help the rUK.

    PS: While the right wing tabloids wet their pants over May and Trump holding hands, the importance of the visit was somewhat missed by American media.

    http://www.independent.co.uk/voices/theresa-may-trump-visit-newspapers-american-press-insignificance-a7550686.html

    Out and Over!!

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    1. This whole Brexit thing is a truly awful story from beginning to end. I honestly can't see anything positive in it at all. Everything you said is true but also profoundly tragic: the power of a few press barons, a large number of right-wing and unquestioning voters, the casual disregard for rationality and expert advice, the triumph of xenophobia over everything. Just awful.

      I haven't been too worried about Trump so far because leaving the EU/EEA is much closer to home. How Americans choose to run their own country is their own affair. I'm far more worried now that Theresa May has brushed aside his comments on torture, his ban on Muslims, and his unpredictable way of dealing with his closest trading partners. All of these things could happen in the UK after leaving the EU and then the ECHR. They're even more likely to happen if the UK sees its future with the US. I suspect that is what many wanted all along.

      The UK will meet almost any US demand, so hungry are Brexit supporters to cast their position in a positive light. The press will declare the whole thing a success no matter what the outcome is.

      I would guess indyref2 is now a certainty. It looks like Sturgeon is going to go through the entire process and only call it when there is no chance whatsoever of remaining in the EEA. Each time she gets rebuffed I guess it is more one thing she can use to underline the way that Scotland is being treated. She strikes me as cautious and patient. I would never say that about Alex Salmond.

      That's a great link. It's easy to forget how tiny the UK is and how most of the world knows very little about it. The UK is important in Europe. That's how we got all those EU concessions over the years. Things just don't look good right now.

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    2. You're right. We tend to forget that whilst our papers would cover every move that an American president made in the UK (WILL make, now that he wants to come in the summer and have Liz watch him play golf at Balmoral!*), but people in the USA are totally uninterested in the UK (until they require us to go to war, it seems).

      I've a mate in Missouri with whom I correspond regularly. He never ceases to wonder at how much I know about America's business. It's not because I'm bright (heaven knows) or in the least interested, because I'm neither. It's just that you can't escape it here.

      Now, of course, Danny can get his UK information from our papers on line, but if he depended on US papers/tv, he'd know next to nothing.

      The one exception to this is news about the royals they fought a war to get rid of. Tabloids there as here treat them like minor film stars.

      * I doubt very much that there is a golf course at Balmoral, despite Fat Boy Airmiles' fondness for the game, so Trump will have to build one if he wants to show off his prowess.

      Can't imagine Liz and Trump together, can you?

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    3. There is a very good golf course at Balmoral already. Not that I'm into such things myself... A friend of mine was enjoying a round when she encountered Her Maj who enquired about the cost of golf balls & when informed said she had better go & find the one she had just sent into the long grass! HM that is, not my friend.

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    4. It is amazing that we know so much about the US. We can distinguish their accents, we know state capitals, their TV stars and their politicians. They can barely tell one European language from another because they're not exposed to the outside world too much. I'd hate to see the same happen to the UK - just to retreat into its own culture. That would be just awful. It is what is happening, though.

      The Royal Family are popular everywhere, not just in the US. The last wedding was huge here. I remember people asking me about it only to be disappointed when I said I didn't really know anything about it. They're the last royalty that behave in a truly royal manner. People find that interesting. It is interesting, especially to the US, which has a short history. The US, of course, has a long history but they're not remotely interested in the years before the European settlers.


      I also can't imagine Liz and Trump together. I'm sure she'll get through it, though. I get the impression that she is good at that sort of thing. She has to meet all sorts of weirdos and despots so I guess one more won't faze her.

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    5. @hugh

      Whenever I think of Donald Trump playing golf the film "Caddyshack" always springs to mind. Someone should do a spoof sketch with Trump's cohorts replacing Bill Murray and Chevy Chase. There's one character in the film who is really, really like Trump. He's always going on about how rich he is, smoking huge cigars and wearing garish 80s golf attire.

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    6. When I think of Trump the movie 'Dumb and Dumber' springs to mind. He could play both parts... Except of course he is not dumb and is more frightening for that very reason.

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  3. They are all great comments. Nothing to disagree with there.

    I think it is like watching a lion wounded and thrashing about in its death throws. Knowing it can't stop the bleeding. It inevitably tries to save itself by thrashing around, rolling in mud to try and stop the drip. It knows it can't but it thrashes and thrashes anyway. Finally it crashes to the ground not quite dead yet the wound continuing to drip. It hears footsteps coming towards it, a hunter places its foot on its chest finally and triumphantly looking down at the now almost defunct beast. The lion turns its eyes upwards and through the glaziness recognises the hunter. It is a Unicorn finally unchained, blood dripping from its horn.

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    1. I like that description very much indeed.

      I hope we're still at the thrashing around stage. Looking up at the unicorn killer sounds genuinely terrifying.

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  4. Well, what a tangle the USA finds itself in this morning, as people with perfectly valid travel documents find themselves in a detention limbo, with an executive order preventing entry and a court judgment preventing them being sent back to where they came from.
    All we get from the awful PM, what amounts to mild disagreement, perhaps occasioned by the fact that the entry ban applies to one of her Tory MP's who happens to be a dual UK / Iraqi national.
    She thinks she can get some sort of decent trade deal with this narcissistic and unpredictable man, while holding no cards at all. Please, Mr Trump be nice to me and I will arrange for you to play golf with the Queen and make Charles carry you clubs while having his mouth taped up in case he mentions climate change.
    Oh, and we will do this in Scotland so you can be rude to the FM and then maybe we'll just give you Scotland as a present as the quaich seemed a bit mingy.

    PS the logical thread of the post still made sense when I got back to the pub, so I see nothing to disagree with in your analysis. My attempt to explain it to one of my drinking buddies didn't go well, though as he glazed over and nearly went to sleep, and he is a pro Remain Yesser. Dunno what would happen if I tried to explain to a Tory Unionist Leaver.......
    Will have to distill it somewhat, as befits a pub discussion.
    I tend to agree with Tris and others that what is happening has little connection with either logic or rationality, and that makes fighting against it very difficult.

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    1. That Tory MP was someone who just recently campaigned against freedom of movement of people in the EU because he thought countries should control their borders. I saw him on Daily Politics say exactly that. There are also twitter links to his public views on the topic. Now he knows what it's like to have yesterday's rights suddenly taken away and he's not happy at all. He really is in no position to complain, in my view.

      What Trump is doing is really, really shocking. It reeks of racism and xenophobia and othering minorities (is "othering" a word?). This cannot end well. It is shameful that we are cosying up to him rather than telling him that his actions are unacceptable.

      The arguments against ECHR from people like Gove is that the UK is a country with a good record on human rights and doesn't need that to be policed. He pointed to the US and Canada as countries who manage their own legislation on human rights. That argument seems quite weak today. Countries do need their actions on human rights to be policed. The ECHR is exactly about that. Leaving it is a scary prospect, given what is happening today at the US border.

      I re-read my post and I could have made my intention a lot clearer. It is a kind of reduction ad absurdum - assume an argument to be true and then see if it leads to an obviously false conclusion. I just never said any of that! I completely agree with everyone who commented that there is nothing in the Government's current behaviour that appears rational or to conform to a consistent set of policy objectives. Fighting against that is indeed difficult.

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