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It will sort itself out, and today seems a good day to talk about Brexit and pricing. (Thread) https://twitter.com/DeborahMeaden/status/1278228852569931776
Looking at my company’s exports for last year, I made money in 27 countries last year with the US my largest customer and Mali, Zimbabwe, Haiti, and Indonesia being on the smaller end.
The thing about exporting to multiple countries is you have multiple market conditions.
Entering into them involves things like worrying about regulations, translations, insurance, due diligence, and normally, a lot of communication.
Some regulations need taken account for in design.
(I have personally had to explain to a design team that their consumer device would be classed as a weapon in the US if they built it to their specification)
(I have personally had to explain to a design team that their consumer device would be classed as a weapon in the US if they built it to their specification)
Then you have to worry about things like market inflation and exchange rates and the logistics of actually getting your product there.
All the time knowing that there is probably a local competitor who is doing it more cheaply, closer, and because it is in the same time zone it can provide better support.
There are ways in which exporters overcome these issues, and normally that’s in the pricing.
If you are selling domestically only, a business would attempt to cover their running costs within the final price of a product.
The material costs, the running costs, and the desired margin would then form the start of a negotiation.
Ultimately, the market sets the price.
Ultimately, the market sets the price.
Any export market also sets the price, only this time with additional market entry costs and concerns.
When exporting you often have to work out your price backwards to ensure the logistics, tariffs, and non-tariff barrier costs are all covered.
To do this an exporter will often attempt to minimise or eliminate the running costs of their business from the price, and in doing so set a price based purely on material costs and desired profit margin.
This allows maximum flexibility to cover the costs of entering any particular market competitively, while also being able to react to market changes.
This is called ‘variable cost’ and Brexit has demonstrated that very few people seem to understand the implications in terms of trade deals and the WTO.
If I’m a trader in Brazil and I’m employing variable cost, a trade deal with the UK doesn’t reduce the price people in the UK pay for my product, it just reduces how much profit I’m losing selling to the UK market.
All the politicians in the UK suggesting I pass these savings on are not going to change the fact this is my profit margin. I was always paying the tariff, not the consumers who now want to me to pay my profit to them.
People in South Korea have apparently been upset that prices haven’t come down as a result of the EU-South Korea deal.
It’s my untested opinion that the further a market is, the more likely that a company trading is employing some kind of variable pricing, and therefore the less likely a trade deal will see consumer price cuts.
Because distance costs are exactly the sort of thing that lend themselves to variable pricing.
A trade deal doesn’t explicitly reduce consumer prices, what it does it make business easier, and that effects running costs (the ones that are ironically not involved in exports when variable pricing).
Today, for example, I have to fill out a W-8 BEN form to trade with the US. I have to stop what I’m doing. Relearn what a W-8 BEN form is, collect the information needed, and get stressed doing it.
For a business these kind of things are time, energy, and in my case, both infuriating and soul destroying.
Time is money, and those costs for a variable price exporter would be pushed into the domestic pricing, not export prices.
Exporters will be hit with exactly this kind of cost under no deal, as well as being hit in the margins of any exports to the EU too.
Trying to do a deal with another country is never going to be as frictionless as the Single Market, therefore, a UK exporter pretty much can’t win.
And this, I'm afraid means, the UK consumer loses.
So yes, this will all be sorted out, because businesses have no choice, but the work to sort it out is constant, the work is not free, and people will be paying for the work in perpetuity.
And to /End this thread here is Anna Jerzewska with an excellent thread on the government “guidance” regarding those trade costs.
This is apparently the 2020 equivalent of the 2016 "we will trade under the same terms". https://twitter.com/AnnaJerzewska/status/1278291281110872064
This is apparently the 2020 equivalent of the 2016 "we will trade under the same terms". https://twitter.com/AnnaJerzewska/status/1278291281110872064
