Sir Billy No-Mates

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It’s unclear exactly what Trump is hoping to achieve by imposing tariffs on all good imported to the US. Sometimes he implies that it’s a temporary move to restore what he calls 'fairness', whilst at other times, he implies that it’s intended to be a long term replacement for income tax – a way, in effect, of transferring taxation from the income of the richest to the expenditure of the poorest. He either doesn’t understand, or is pretending not to understand, what tariffs are or how they work. My money’s on the former; partly because it’s the simplest explanation and Occam’s Razor applies, and partly because anyone who thinks that tariffs can be applied to smuggled fentanyl is clearly demonstrating his lack of understanding. Whilst the idea that smugglers would stop at the border to fill in forms and pay the tariff is attractive, its relationship to reality is somewhat distant.

The underlying statistics on which the tariffs are based are also questionable: the idea than an island group only inhabited by penguins and seals is exporting quantities of “machinery and electrical” goods to the US is fanciful at best. Whoever produced the figures for his show yesterday clearly didn’t apply any sort of ‘sense check’ to the numbers before letting His Orangeness loose to announce them. The calculation of the total value of tariff and non-tariff barriers is opaque, to say the least, but then basing decisions on arbitrary figures pulled out of thin air is his normal modus operandi.

However flimsy the factual basis, however arbitrary the decisions taken as a result, the fact is that the tariffs are going to be in force (until he changes his mind, which could be tomorrow - or even later today - based on experience to date), and the question is about how to respond. The main losers, in the immediate short term at least, will be US consumers. Even if the companies importing goods from elsewhere succeed in ‘persuading’ their suppliers to drop prices, or themselves decide to somehow ‘absorb’ part of the increase, the bottom line is that, for US consumers, prices of imported goods will rise. That isn’t a bug, it’s a feature; intended to encourage more domestic production. It might even work, but not on a large scale in the timescale of the current Trump presidency. Investment decisions required to build domestic capacity to replace imports aren’t going to happen overnight. To the extent that US demand for their products reduces or they feel obliged to reduce their pre-tariff prices, companies in all of the countries hit by tariffs, as well as their employees, will also be losers although, again, the timescale of that happening depends on how inelastic the demand for their products is.

For all the same reasons, it follows that the main losers when countries impose retaliatory tariffs will, in the short term, be the consumers in those countries; the process is a reciprocal one. For that reason, and despite all the natural desire to hit back at the person and country responsible, the immediate reaction of Sir Starmer (which is that he should not react immediately) is probably sensible as far as it goes. If and when it becomes clear that Trump’s approach is giving some US companies either individually or by sector an advantage over UK companies, that is the time to respond forcefully. Protectionism can also be reciprocal, another of those unfortunate facts which Trump seems incapable of understanding.

The bigger concern with Sir Starmer’s response is about whether trying to ingratiate himself and the UK with His Orangeness is the best way to deal with a bully. Being best mates with a bully might buy some relief in the short term, but it facilitates the bullying of others and, in the long term, the bully will always come back for more. Sir Starmer’s apparent unwillingness to collaborate with others rather than seek advantage over them is unhelpful, and fails to acknowledge that, however important the UK might have thought itself to be in the past, the future of these islands is inevitably linked to that of the rest of Europe. His reluctance to accept that a choice has to be made is itself making the default choice of sucking up to the bully. Talk of a reset of the relationship between the UK and the EU is just hot air when the government is seeking to negotiate an advantage for itself over the EU partners. Pretending to be everyone’s best friend is the best way to end up friendless.

Following the money

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He might twist and turn a little on the issue, but there’s no real doubt that Farage wants to move from an NHS funded out of taxes to one funded more by insurance. He knows, though, that the NHS ideal of services being free at the point at which they are required is popular, and he’s obviously finding it difficult to find a form of words which means that would still be true as well as meaning that those who can afford to pay for insurance will do so. 

It isn’t just a Farage thing, either. There are plenty of Tories as well as an increasing number of Labour politicians who seem to be thinking along similar lines, with they key phrase always being about ‘those who can afford to…’. A system of health care based on the most well-off paying more than the poorest sounds hard to argue against – but what advocates of such an approach want us to forget is that that’s exactly what we have now. Health care is free for all, funded by tax and National Insurance, and those who earn the most pay the most. In principle, there’s no necessary difference between the two models. In principle, it shouldn’t matter which model we use, so why are they so keen to change?

Ultimately, there are several reasons, none of which they are particularly explicit about.

The first two are purely ideological: they have an almost pathological hatred of taxation, the state, and the whole idea that the state should be doing anything. Handing over the NHS to the management of a network of private providers and private insurance companies is, in their eyes, axiomatically better. That leads us on to the second reason, which is almost a corollary: they believe that all economic activity (and whilst ‘economic activity’ isn’t the first description of the NHS which springs to mind for many of us, the NHS is actually a significant part of the UK economy) should be profit-generating.

There are also two probable consequences of an insurance-based system along the lines that they are suggesting. They are both features rather than bugs. The first is that the target group for paying more is rather larger than the wealthy few who might be more easily targeted by a more progressive tax system. What might be called the ‘middle earners’ are the ones who would end up paying more. They might be ‘able’ to afford it, although it is always and inevitably the case that people paying more for one thing end up with less disposable income to spend on other things. That is the price they would pay for having a more reliable and available health service. The second is that we would end up with a two-tier health system. The UK, allegedly, cannot afford to improve the NHS for all, but a system of private providers available only to those paying for insurance would provide a better service than the residual NHS which would continue to exist to serve those who could not afford, or choose not, to pay for insurance. It is, after all, that belief that they will get a better or faster service that drives many to pay for private insurance currently.

The ‘winners’ from the alternative system would be those owning the shares in the companies guaranteed to make a handsome profit; there is a group in the middle who would lose financially but probably gain in terms of an improved service; the ‘losers’ will be those who are thrown back on an inadequate public NHS, getting a second-class service – typically, the poorest and the lowest earners. It’s obvious why the first of those three groups would see this as being in their personal interest. They will be a reliable source of donations for any party promoting such a policy. Those in the second group would have to weigh up the pros and cons rather more carefully; some would favour it, others less so. But the target electoral group for Farage and his gang is actually the third group. His reluctance to spell things out starts to look entirely rational.