Some Thoughts on the Government's Trade Strategy
Not to be confused with its Industrial Strategy or its SME Strategy
Last week the government released its Industrial Strategy. I personally don’t think we really need to bother with industrial strategies as they are invariably an excuse for government’s to pick winners by subsidising industries which they deem worthy with taxpayers’ money while ignoring other important industries. A case in point is that the Industrial Strategy document contained the word ‘hospitality’ – a sector which employs 3.5 million people in the UK – only three times and one of those was a misspelling of the word ‘hospital’, which kind of shows you just how important the government thinks that particular industry is.
Rather than trying to have an industrial strategy the government should instead focus on creating the conditions for businesses to grow and invest. In the UK right now that will involve lowering energy prices, reforming planning, and cutting taxes. There is obviously a place for the government to support small businesses and entrepreneurship but it should, for the most part, just get out of the way.
Anyway, the government also released its Trade Strategy. This is welcome as the country has been lacking a coherent strategy for quite some time – when I was in DIT it was all very chaotic because we had the prospect of the Cabinet Office failing to get a Brexit deal which increased the pressure on us to get all the rollover deals, updated deals with Japan and Canada, and brand new deals with Australia, New Zealand, the US, India, and join CPTPP so that we should have something to show for it. Now that Brexit is behind us this would have been an ideal time to reflect as things return to normal but unfortunately things are now far from normal given that the global trading system is falling to pieces, it is right that the government has some form of strategy to navigate the country through it.
Although it was released 30 minutes late, I found myself agreeing with most of what was said in the Strategy. It rightly states that the starting point for any trade strategy remains Adam Smith making the case for free trade:
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in.”
Free trade made the UK rich when Adam Smith was writing. It has brought great wealth to the country and much of the world in the past 30 years and has lifted countless people out of lives of poverty and subsistence on a scale unprecedented in human history. As such, it is encouraging to see the government defend it and lament the rise of protectionism around the world.
It also highlights many of the key barriers and opportunities for UK trade. For example, it admits that services trade is much more important than goods for the UK but is so often overlooked. It recognises the importance of digital (which sounds like a buzzword but is massive for the UK) as well as acknowledging that while FTAs are important, they often don’t create too much value in the grand scheme of things – mainly because they focus on tariff reduction rather tackling various regulations or doing anything for services.
However, while the sentiment and ambition is clearly right, there actually isn’t a whole lot in the way of substance. The vast majority of it is looking back. ‘We know that X is important, and so that is why we did Y’. There is also a lot of ‘X is an issue so we will consult with stakeholders and possibly do Y’. It would have been helpful to see more in the way of concrete plans rather than some self-congratulatory guff and a commitment to Engage with Stakeholders.
Some of the actual announcements are welcome. For example, it is creating the Ricardo Fund named after the other great 18th Century British economist. The Fund will help UK firms make the most of export opportunities around the world. This is crucially important as all the evidence shows that when it comes to trade and growth, export promotion works far more successfully than protectionism and mercantilist policies.
It was also encouraging to see an emphasis on Rules of Origin (this must be like Christmas and his birthday combined for Sam Lowe). This again is an area which is often overlooked in trade agreements with their focus on tariffs but they really do matter and so any liberalisation in this area would increase trade. One of the ways the UK is considering doing this according to the Strategy is by joining the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin. This is probably a good idea but is likely to be oppossed by the hard core Brexit types who will see it as a customs union with the EU (which it isn’t).
Moreover, the announcement in the Strategy that the government will simplify the Developing Countries Trading Scheme and create a new regional cumulation group in Africa and merge and expand existing ones in Asia is welcome. Liberalisation of Rules of Origin this area will enable businesses in some of the poorest countries on the planet to trade tariff free with the UK and allow their workers to massively improve their lives and the life chances of their children, all while giving UK consumers access to cheaper goods. This is a great thing and is something I’ve been calling for for a while.
Perhaps most controversially, the UK is now going to join the catchily named Multi-Party Interim Appeal Arbitration Arrangement (MPIA). This is essentially a group of countries which have banded together within the WTO to resolve disputes while the WTO somehow figures a way to get its appellate function set up again (which it can’t without the US being on board). I say it’s controversial because it’s unlikely to go down too well with Trump. Back when I was advising Truss we had the option to join it then but as the UK approach on anything to do with the WTO/international trade in general as to just pretty much follow the Americans for the past few years, we decided against it with the official reason being that it would be far more effective to actually reform the WTO.
While I do still believe that reforming the WTO is the right thing to do and it is true that Trump won’t be too happy with the UK’s move, I do think that joining MPIA is the right thing to do and is less risky than it otherwise would have been. The WTO is pretty much moribund and does very little and is unlikely to do anything of value while Trump is in the White House unless he can be sold on how it would be in America’s interests to do so. Back in 2020 we had a plan to reform the WTO which would have seen the UK working with the US and the EU to reinvigorate the WTO but sadly Boris Johnson wasn’t interested. I do hope that the WTO can be saved but this won’t happen without the US getting on board so in the meantime we have to work with what we’ve got. Joining MPIA allows trade disputes to be resolved while demonstrating the benefits of the rules based system which underpins and supports free trade. Joining MPIA is also less risky as Starmer, Reynolds, and Mandelson seem to have done a good job at keeping on Trump’s good(ish) side on trade and the US have enough on their plate with all the trade wars they’re getting into with everyone else to really worry about this.
My ‘Not Involved in Human Trafficking' t-shirt has people asking a lot of questions already answered by the shirt
Throughout the Strategy document the government rightly makes the case for free trade and points out the threat posed by protectionism. While I do think that the government believes this, I feel it is in danger of also slipping into protectionism itself.
There is a whole section dedicated to ‘Trade Defence’. In many ways this is understandable and it is right that the government does take steps and has tools to challenge genuinely unfair and uncompetitive trading practices such as subsidies and dumping which can destroy jobs and industries in the UK and undermine the case for free trade.
The Strategy at one point states: ‘We are not lapsing into protectionism’ when justifying its new approach to trade defence which is probably the kind of thing you would say if you did find yourself lapsing into protectionism.
The reason I am wary is because in this section it sets out that it’s going to strengthen the Trade Remedies Authority’s powers in relation to trade defence while also broadening the scope of trade defence. It is disconcertingly vague as to what it actually means by this. At the same time it states that it will be more accountable to ministers. We saw just this past week that the Business and Trade Secretary decided to overrule the TRA and so the move is pretty much a power grab which will allow the government to ignore expert advice and impose protectionist measures for spurious reasons. As discussed above, it is right that the government does tackle genuinely unfair trading practices but these reforms have the potential to allow politicians to ‘protect’ one politically important business or industry at the expense of consumers and other industries. What is more, if the government is going to overrule the TRA then there seems very little point in it existing as it is a waste of everyone’s time and taxpayers’ money – we should probably abolish it.
To wrap things up, there is lots of good rhetoric in the Trade Strategy, especially on the importance of free trade. Moreover, some of the things actually announced are sensible, positive, and in the country’s best interests. However, it is at time far too vague and there is a real danger that the country itself will embrace protectionism.
Thanks as ever for reading – I’m about to go axe throwing. Enjoy your weekend!