An OK Deal is Better than No Deal

Some thoughts on UK-India

Rishi Sunak is refusing to sign a ‘shallow’ trade deal with India according to Politico. This is being spun by the government as the Prime Minister being determined to hold out for the best possible deal that will bring the maximum benefit to British firms and the economy as a whole. What is more, Sunak is keen to differentiate himself from Boris Johnson and Liz Truss who were seen to be too eager to get a trade deal at almost any cost.

There is much to commend Sunak’s position. I have written previously on this blog on why trade policy should be based on what is best for UK consumers and the economy as a whole and not powerful lobby groups representing sectors of the economy which are pretty insignificant in GDP terms such as agriculture (coincidentally Sunak is today addressing the National Farmers’ Union). 

What is more, I have argued previously (most recently here) that the government should reject short termism and hold out for the best possible deal with India. Given India’s huge size, the fact that it is relatively protectionist, and the fact that it’s becoming increasingly rich and powerful, outside of a deal with the US, a deal with India has the potential to be the jewel in the crown of the UK’s post-Brexit trading relationships. It’s also worth noting that although trade deals are often just a starting point and can be built on and enhanced, this is not necessarily the case with India and so we might not get a chance to improve things for years or even decades. As such, we should want to go as deep as possible.

However, Sunak needs to be careful not to let his desire to be seen as different from Truss and Johnson get in the way of making progress with India on a deal. This is for three main reasons.

First, one of the main sticking points is immigration (or ‘mobility’ as it is often euphemistically called in the trade policy world). The Indian government would be very keen to increase mobility whereas the UK government pretends that it wants net migration to the country to be zero. Trade deals are all about negotiation which obviously involves some give and take on both sides. If the UK doesn’t agree to some Indian terms then India won’t agree to the UK’s demands and vice versa. It will be a difficult selling point for Sunak and we obviously really do need some proper thinking on immigration policy, but the government shouldn’t squander the opportunity of a deep and meaningful deal with India because of immigration. The UK’s trade negotiators are world class and so I’m sure there can be a way out of this impasse if there is the political will to make it happen.

Second, there is a lot of squeamishness in the government about the trade deals with Australia and New Zealand. As someone who worked on the deals all the way from launch to Agreement in Principle I do accept that we probably should have had more of a clear strategy when it came to the deals and we could have probably got more. As an aside I would point out that at this time the Department for International Trade was working on dozens of rollover deals, enhancing the deal with Japan, negotiating with the USA, and launching negotiations to join CPTPP, all with the looming deadlines and implications of leaving the EU. Getting a trade deal was politically important and our negotiators did a great job in delivering that.

More importantly, the criticism of the deals with Australia and New Zealand are driven by old fashioned mercantilism. Trade deals are unfortunately viewed as zero sum games where negotiators are sent in to get maximum market access for their businesses and grant as little in return as possible to the other side in order to ‘protect’ domestic producers. This is a terrible way to conduct trade policy and encourages rent-seeking. Increased imports are to be welcomed as it forces firms to up their game and leads to greater choice and cheaper goods for consumers. We should embrace increased imports.

Finally, Sunak risks ignoring reality (probably not for the first time). Services are much more important to the UK’s economy than sectors such as agriculture. However, given that he and his predecessors have spent so much time trying to appease their lobby groups while also denigrating service heavy industries such as universities means that it will be almost impossible to turn the tide and start giving preferential treatment to services anytime soon. What is more, given that point one discussed above is unlikely to change anytime soon, we are where we are.

I pointed out earlier that India is a huge country, relatively protectionist, and is becoming increasingly powerful. Therefore, it is right that the UK hold out for the best possible deal. This remains true and it still should push for something deep. However, this is looking increasingly unlikely. As such, and I certainly wouldn’t advise the government to call it this or publicise it, but a ‘bad’ deal might be better than no deal. Given just how big and protectionist India is, then even a thin deal would actually be quite significant. If we saw liberalisation in terms of the sky high tariffs on products such as Scotch and cars then that would be a boost to certain sectors of the economy, which is certainly nothing to be sniffed at.

In conclusion, Sunak and Badenoch should still hold out for a substantial deal and this will require them to give way on some issues. However, the UK should still sign something at the very least and then leave it to the next government to push for something more.

Other stuff

This is my first post on here for quite some time and so I feel I’ve neglected the blog a bit. I hope to write here more regularly in the next few weeks. However, I have been writing a bit for other publications since my last blog post.

I wrote two articles for CapX. The first was about the Port Talbot steelworks and what could and should come next for that community. The second was about Universal Credit and why DWP needs to end the cruel practice of reducing the payments of people who claim advances.

I also wrote two articles for the Evening Standard. In the first article I have a pop at the government over its idiotic plans to introduce 99 per cent mortgages. Article number two sees me writing pretty much the same thing I write every six weeks or so criticising the Bank of England’s Monetary Policy Committee for failing to lower interest rates.

Thanks as ever for reading. If you enjoy reading Opportunity Lost then feel free to bung some cash my way here. You can do so here.