The UK's Actual Choice

Nobody wins a trade war

It’s never a good sign when international trade is on the front pages of major newspapers and receives a lot of air time on the TV and radio. I say this as someone who thinks that international trade is fascinating – I’ve studied it, researched it, and worked on trade policy and negotiations– it’s a great thing, but the debate around it should be pretty dull and not headline grabbing. It looks as though that is now out of the (Overton) window as international trade is becoming very ‘interesting’ again.

This is obviously to do with the re-election of Donald Trump in the US. However, Britain being Britain means that this is once again a proxy debate about Brexit (because of course it is). Over the weekend a Trump aide said that the UK had to choose between the US and the ‘socialist’ EU. Leaving aside the bonkers nature of the claim that the EU is in any way ‘socialist’, it was a pretty silly thing to say. It was of course jumped on by hardcore Brexiteers whose desire to get a deal with the US seems to mainly stem from a hatred of the EU more than anything else. Not to be outdone, the FBPE crowd were quick to pick up comments from former WTO chief Pascal Lammy that the UK must choose between the US and the EU and it should of course choose the EU…

Last week I wrote that if the choice was between a deal with the US or massively diverging from the EU and jeopardising our trading relationship with the EU then we should still prioritise the EU at this point (even though a FTA with the US would be significant). I stand by that but ultimately we’re unlikely to see ourselves facing that choice. I think it is unlikely that we will get a comprehensive FTA with the US or where we will be in a position where we would start to think about diverging more from the EU or aligning ourselves more closely with the bloc against Trump’s tariffs.

 

What is far more likely under Trump 2.0 – and what very few people seem to be discussing in the UK as it has little to do with the hated/beloved EU – is that the UK will be forced to choose between trade with the US and trade with China. It’s true that Trump does see trade a zero sum game and he does not like the US having a trade deficit with anyone which means he’s happy to slap tariffs on allies and friends, but he really does not like China and he and his allies sees China’s success as a threat to the very survival of the US. As such, while he is unlikely to insist that the UK trades less with the EU, he may very well state that if we want to see UK goods being exempt from tariffs then we will have to join the US in its trade war against China.

I do not agree with Trump’s view of trade being a zero sum game. However, I have a lot of sympathy for his opinion on China. It frequently flouts WTO rules by engaging in unfair trade practices such as massive subsidies and dumping, it levies export controls on critical minerals, and it engages in theft and other IP violations. This is not to mention that the CCP itself is an evil regime which persecutes its own people and threatens its neighbours. China needs to be challenged.

However, the way to go about this is not through a trade war. Protectionism may prop up some domestic industries but that comes at the expense of increased costs for domestic firms and consumers. Protectionism then leads to retaliatory tariffs which makes exports from the first country less competitive which again hurts those firms and puts jobs in jeopardy. What is more, we saw from Trump 1.0 that tariffs do not lead to manufacturing jobs being reshored, they simply move somewhere else in Asia. The biggest losers are households who see their wages taking a hit, higher prices, and the threat of losing their jobs and livelihoods. Nobody wins in a trade war and so the UK should do all it can to avoid getting into one with China as we will be poorer as a result.

Moreover, we do not want to return to a world where the rules based system which supports free trade is undermined and replaced by one where the most powerful nation can acts as it wants without any real consequences and where disputes are settled by trade wars. The UK should instead be working with the US and the EU to make the case for the international rules based system where the WTO is empowered and where any violations by countries such as China are punished severely. I hope to write a longer piece on what this should look like at some point so watch this space.

Thanks as ever for reading. I’ll probably write at least one other piece this week, time permitting.