Time to Abolish the Trade Remedies Authority?

Burn After Reading

The Chancellor has claimed that the government is protecting the high street by giving more resources to the Trade Remedies Authority while also closing a loophole which currently exempts goods worth less than £135 from tariffs. While the government’s actions are no doubt well intentioned, they will do very little to help the high street and will simply exacerbate the cost of living crisis for households.

Nobody wins in a trade war and the UK will suffer as a result. However, one of the few positives which could come out of it would be as a result of trade diversion in which goods which might originally have been destined for one country end up being sold in a different country due to lower tariffs. As the US is levying high tariffs and other countries might be tempted to retaliate by imposing very high tariffs themselves, the UK could become a much more attractive destination for exporters. This would benefit the UK as it would lead to greater choice for consumers and would also lower costs for them as well as for firms which rely on imports to make their products. It would also force domestic businesses to up their game due to increased competition.

Unfortunately the government seems determined to prevent this from happening. While it is right that the government does take unfair trade practices seriously and it should tackle genuine cases of ‘dumping’ by countries of China, this is not what is happening here. It is essentially demanding that the TRA prevents products which are produced in a normal way (without government subsidies) often in countries with which we usually trade freely with from entering the UK market.

What is more,the government is going to close the loophole for low value goods shipped over to the UK by companies such as Shein and Temu. Such a move will increase costs for these firms which will almost certainly be passed onto consumers in the form of higher prices. At a time when households are already struggling with the high cost of living, this is surely the wrong approach for the government to be taking. Moreover, given the popularity of companies such as Shein and Temu with Gen Z (that’s ‘zed’ not ‘zee’) it will be young people – who already get a raw deal in the UK – who will be most adversely affected.

However, it is not just the fact that the government is doing this which is problematic, it is the reason why it is doing so which should worry us. The government is boasting that their policy is supported by Next, Sainsbury’s, and Currys. Of course these companies support such a move as it shields them from competition at the expense of consumers. This is a textbook example of rent-seeking by these firms and the government should not be going along with it and it certainly should not be placing pressure on an independent body such as the TRA.

Furthermore, moves such as this will do nothing to save the high street. Businesses are struggling due to high energy prices and the restrictive planning system which makes it almost impossible to build anything which increases the cost of rent for office spaces. This has very little to do with competition from firms in other countries.

So, what should be done?

I really don’t like loopholes and so I do have some sympathy with the firms who are calling for this change (despite their transparent rent-seeking). However, this just strengthens the case for simplifying the whole system by abolishing all tariffs on all goods from every country, regardless of where they are from. Not only would this help to create a ‘level playing field’, it would lead to lower prices for consumers. Essentially this would be a move towards unilateral free trade with countries which the UK doesn’t currently have trade deals with. Ideally this would be permanent could be time limited, say for two years, so that the countries which have not lowered their tariffs are told that if they enjoy their firms having tariff free access to the UK market then it’s time for them to sign a deal if they want this to continue. There should of course be support for domestic firms and workers in order to help them with the transition.

The government also needs to fundamentally reform the TRA or consider scrapping it entirely. At the moment it can be easily overruled by the government and this, weirdly, helped to bring down the Johnson government. I saw this when I was advising Truss. We’d get the advice from the TRA that certain protectionist measures should not be implemented or abolished, but it was overruled by the government due to lobbying from domestic firms.

The fact that it can be so easily overruled defeats the object of it being independent of government. Moreover, its function at the moment is to work in the interests of firms in order to protect them. While tackling unfair trade practices is important, the ultimate concern of the government and ‘independent’ bodies should be consumers. The question asked by the TRA should not be ‘how will this impact businesses’ but rather ‘how will this impact consumers’. Rather than trying to protect businesses from international competition it should look at ways to promote free trade so that households have greater choice and access to more affordable goods.

In many ways this was the original vision for the TRA. It was established by Dr Liam Fox in order to promote free trade. One of the reasons it is in Reading of all places (which I hear is lovely at this time of year) was not due to ‘Levelling Up’ but rather because it’s supposed to be an arms length body and it’s harder for politicians to interfere if it means getting on a train. As an aside, TRA employees are only expected to be in the office a few days each month so there might not actually be anyone there if the Secretary of State suddenly felt compelled to visit Reading.

The TRA and its staff are often the side of the angels in promoting free trade and it has top not economists and lawyers conducting rigorous analysis and investigations and they often make the right call. Unfortunately, they can be simply ignored and overruled by politicians. As such the TRA should be made truly independent where it can’t be overruled by the government or it should be shut down. It’s a waste of taxpayers money to ask officials to do work within a certain remit only for that to be ignored. The TRA’s budget could be more effectively spent elsewhere and the skills and talents of its officials better utilised in the private sector.

Of course we should take unfair trade practices seriously and there may be instances where it is appropriate for the government to stop a surge in imports. However, these instances are incredibly rare and so the government should do all that it can to welcome more imports.

Finally, if the government really wants to save the high street then it would focus on lowering energy and rent costs for businesses. The easiest way to achieve this is to liberalise the planning system so that more commercial properties and nuclear plants can be built.

Other stuff

It looks as though Trump is going to wack tariffs of 25 per cent on pharmaceutical products entering the US. It’s Trump so nobody has any real idea if this will actually happen but myself and Dr Sean Phillips wrote an article for City Am on why this would be really bad and why the government needs to act urgently to avoid this. You can read it here.

I also wrote something for LBC. It’s on why Trump’s tariffs are bad news for the UK but the government can’t escape the blame for the country’s poor economic performance due to it deciding to talk down the economy last Summer and its awful Budget. However, the rot set in long before Labour got into power and if we really want to see some economic growth then we need to make energy far less expensive and build millions of new homes. You can read it here.

Thanks as ever for reading. Have a great weekend!