Trump will look after his friends - until he doesn't

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It’s probably better for the UK to have a trade deal with the US than not, even if the deal isn’t as good as some of its proponents like to claim. Still, there’s something of an achievement in finalising a deal of any sort with Trump, so Sir Starmer is probably right to feel at least a little pleased at getting the thing formally signed yesterday.

Given Trump’s propensity to change his mind without even waiting to drop a hat, there is an obvious question mark about how long the deal will last before Trump decides that he wants more. From a Trumpian perspective, any deal concluded quickly probably doesn’t extract as many concessions as he might get by reneging on it later. Assuming that he will honour his word would be very silly, and even Sir Starmer is surely bright enough to understand that.

What should particularly concern Sir Starmer were Trump’s own words about why he was doing a special deal for the UK: “The UK is very well protected, you know why? Because I like them. That’s their ultimate protection.” History shows that Trump always looks after his friends right up to the point where he decides they’re not his friends after all. As his former ‘first buddy’, Elon Musk is only too well aware. There seems to be a prevailing belief amongst the echelons of the English Establishment that Trump is so besotted with the English Royal Family that he has a soft spot for the UK. One of the reasons why they find it so easy to believe that is that it fits their own preconception of English exceptionalism. The more sceptical amongst us might just conclude that, however much he likes the odd royal (and some of them are very odd), when push comes to shove he likes money even more.

Short term wins aren't always victories

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The precise details of the ‘trade deal’ agreed between Trump and Sir Starmer are less than entirely clear at present, but it appears that the UK has conceded rather more than it has gained, in order to get back to a position which is not quite as bad as the current one, but not quite as good as the one which pertained before Trump started his tariff campaign. I was rather taken by this description from Gaby Hinsliff in the Guardian:

“This has been less a trade deal between allies – a process of give and take that in the long run hopefully leaves both sides better off – than a hostage negotiation. Pay Trump what he feels he’s due, and you get your economy back in roughly the state it was before, though missing a few fingers and probably traumatised.”

The bigger question is how long it will last. With someone as fickle as Trump in charge, today’s best deal ever can easily be redefined tomorrow as the work of a complete loser, and it will all be the fault of the groundwork that the Biden administration carried out. Sir Starmer is in a bind, even if he doesn’t realise it yet. The more he proclaims it as a good deal for the UK, the more His Orangeness will think that he didn’t demand enough – and reneging on deals that he himself negotiated and signed is always an option, as Canada and Mexico have already discovered. Bullies who think that they can get more will always come back and try for it. Assuming that your negotiating partner is honest and trustworthy simply doesn’t work with someone like Trump – and there are plenty of victims willing to attest to that.

Is it better to have done a deal than not done it? In principle, yes, of course. Being slightly less worse off is obviously an improvement – for an individual participant. Whether allowing and facilitating a strategy of divide and conquer is better than forming alliances with a bloc (the EU), which has rather more clout, to deal with the orange menace collectively is a much harder question to answer. The impact of the deal, when we know the detail (which will have some good things and some bad things in it), will be relatively small in economic terms. The bigger significance is whether it encourages or discourages Trump’s approach of bullying his way around the world. I suspect the former is more likely than the latter.

Time to embrace the elephant

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There was a time in the 1960s, when Harold Wilson was PM, when the big monthly financial news regularly headlined by the BBC was all about this strange thing called the ‘balance of payments’. It was a crude and simplistic measure of the difference between imports and exports, and the news was invariably bad – the UK was importing more than it was exporting. These days, the numbers are worse – much, much worse – as this chart shows, but no-one is worried about it. The story about how a small imbalance was an existential problem but a huge imbalance is not an issue is a tale for another day. The point, here, is that government at the time, prompted as I remember by tabloids, launched the ‘I’m backing Britrain’ campaign, encouraging consumers to seek out and purchase UK-made goods rather than imports.

The campaign generated a lot of light, in terms of publicity and faux patriotism, but not a lot of heat, in terms of its effectiveness. It’s a precedent worth bearing in mind when considering the calls for a ‘Buy British’ campaign in response to the Trump tariffs. There are, of course, plenty of good reasons for buying goods as locally as possible, keeping the money in the local economy and reducing food miles amongst them. But for a variety of reasons, not all of which are immediately obvious, buying local can sometimes be an expensive option, not one open to everyone. Even assuming that everyone had the choice, and the financial ability to make that choice, of selecting British produce over all others, past history does not suggest that success is guaranteed. Worse still, if we did all choose to buy British, it doesn’t follow that the chief sufferers would be the desired target (i.e. the US); it’s just as likely that producers in other countries, including some of the poorest, would be the main losers.

The desire to strike back at Trump and by extension the US is entirely natural and understandable, but finding the best method of doing so is far from straightforward. If, as most of the experts say (and I believe them on this), the main immediate losers from tariffs are the consumers in the country imposing them, then retaliatory tariffs would do more harm to UK consumers than to anyone else. The second-line losers are the companies and their employees in the country targeted by tariffs, but the relative size of the UK and US economies means that the US economy can tolerate higher tariffs more easily than could the UK economy. Protection of those impacted looks to be a better mitigation than retaliatory tariffs, even if the UK government has been more than a little timid on that front to date.

Possibly the worst possible response is to plead with Trump for a deal which gives the UK some advantage over all the others seeking similar relief. Not only would it involve making unwanted concessions (and not just over things like food regulation – it’s clear that the US also wants to use its economic power to affect social and taxation policy in supplicant countries), the probability is that he’d just bank any concessions made and start again a short while later demanding more concessions. Giving in too easily to a bully merely convinces the bully that he didn’t demand enough in the first place.

That leaves us with the elephant. There is one, and only one, economic entity in the world which is big enough and has a diverse enough economy to be able to stand up to the US on the one hand, whilst developing its own economy internally to reduce or eliminate the need for the US on the other. It is, of course, the EU. Joining forces with the EU, and co-ordinating a joint response, doesn’t even require rejoining, or even the partial rejoining which the single market and the customs union represent. It merely requires a willingness to accept that joint action is better than allowing Trump to divide and rule (making that difficult is precisely why he hates the EU so much). It says a lot about what the Labour Party, founded on the idea of solidarity, has become that the idea of collective action has become such an anathema, and that competition and stealing a march on others is the only option of which they can conceive.

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.

How are the benefits of trade to be shared?

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After a few days of chaos, it’s still unclear exactly what Trump wants from Canada in exchange for not imposing tariffs in a month’s time. He claims it’s about three things: drugs, migrants, and trade imbalances but, as is ever the case, any numbers he quotes are at variance with any objective analysis. There have been some suggestions that, on both drugs and migrants, the flow from the US to Canada is greater than the flow from Canada to the US. The nature of illegal flows is that we can never be certain of their true extent, but such a conclusion meets the ‘common sense’ test; it certainly sounds credible.

That leaves us with a trade imbalance. There certainly is one, even if not as large as Trump claims, but the logic (insofar as that word can be used) of Trump’s position, with his threat to impose tariffs on any country or bloc which has a trade surplus with the US, is that all bilateral trade should be at or near a point of balance between imports and exports - or else favourable to the US. It’s an impossible target, and even if it were desirable, unilateral tariffs followed by retaliatory tariffs will not achieve it. They will merely increase prices for consumers in all the countries involved.

Maybe his real agenda is the one he’s now stated often enough – the annexation of Canada, and its incorporation into the US. That would certainly make the trade imbalance disappear – or rather give a good impression of disappearing. It wouldn’t really disappear at all, of course – it would merely be internalised. The ‘51^st state’ would still be selling more to the other 50 states than it was buying from them, but no-one would notice any more. It’s equally true today that, within the current 50 states, some ‘export’ more to other states than they ‘import’ from them, but no-one cares very much because it’s all internal to the US.

Well, I say that no-one cares very much, but that’s not exactly true; it’s more that those who do care don’t realise what it is that they care about. To the extent that importing more than they export impacts the prosperity of the state concerned, that imbalance makes some US states poorer than others. Job opportunities are elsewhere, and young people often migrate out in pursuit of them. More economic migrants. In this respect, the economic relationship between some states and their fellow states within the US is not entirely unlike that between Wales and England (or more precisely, Wales and the south-east of England). But as long as all the international trade statistics treat the US (or the UK) as a single entity, those economic disparities disappear into the overall average. Annexing Canada would, in itself, make no difference whatsoever to the economic relationship between Canada and the 50 states – or to the people within those 50 states. It would merely make the discrepancy dissolve into the US average.

Taking the world as a whole, trade is always in balance. Total exports match total imports. It cannot mathematically be otherwise, because at a global level, it’s a closed system. Drawing arbitrary lines on a map and trying to balance trade across them is then a pointless exercise. The issue is, or should be, about how the economic benefits within that global closed system are distributed. It’s a question that the Trumps of this world can’t even understand, let alone answer.

Displaying weakness

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The Labour government apparently believe that they are ready for Trump, having gamed a number of different scenarios. That sounds a bit complacent to me: the one thing that is absolutely predictable about Trump is his utter unpredictability. The probability that the UK government can have foreseen all possibilities is remote. It seems increasingly as though the team Trump is assembling around him do indeed have some sort of coherent – albeit deeply unpleasant – programme, but whether they will be able to keep him to it is likely to remain unclear for some time to come. I find myself wondering who exactly the ‘useful idiot’ in all this is. Are his team Trump’s useful idiots, or is he theirs? Him not being the idiot might seem unlikely, but it might still be the better scenario.

Whether he will go ahead with his scheme to impose 10% tariffs on all goods entering the US is yet to be seen. He really does seem to believe that the countries and companies sending those goods will pay the tariff with no impact on the prices paid by American consumers. It’s the stuff of make believe. It is certainly likely to disrupt trade relations and is likely to be counter to World Trade Organisation rules. That latter won’t worry him, not least because he knows that WTO rules and processes mean that it will be years before the WTO can co-ordinate its response, and he will no longer be president by then (assuming that he doesn’t also somehow manage to abolish the two-term limit on presidents – or even abolish elections – in the meantime). There are only two countries or trading blocs big enough and powerful enough to take meaningful retaliatory action, and they are China and the EU.

The UK’s response so far – trying to persuade Trump to exempt the UK from an otherwise universal tariff – assumes that the so-called special relationship is something more than an outdated form of words. But such special pleading is not only not helpful to rebuilding relationships with the EU, it also looks like weakness. Trump might well like to see weakness and supplication before him, but the idea that he will respond otherwise than by taking advantage of any weakness is completely at odds with his nature and history. Starmer’s obsession with not challenging any of the consequences of Brexit, and his willingness to bend the knee to Trump look likely only to compound those consequences.

Is it all about Empire 2.0?

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At first sight, the idea that the UK should leave a large and prosperous trade agreement on its doorstep in order to join one based on the Pacific Ocean looks like a very strange decision. It doesn’t look much less strange on second, third, or even fourth sight either. It’s not totally geographically invalid however – part of the UK is, in fact, close to the very centre of the Pacific Ocean. The Pitcairn Islands may only have a population of 47 (at the last count), but the men are all out of prison now and anyway even 1 would be enough to make the UK a Pacific nation. In a strange quirk of history, that infamous mutiny back in 1789 has given the UK access to the untold riches of a 0.08% boost to GDP (maybe – even the trade minister seems a little dubious about that claim), all based – as was much of the empire – on a bit of robbery, rape and pillage, for which we should now, apparently, be grateful.

The logic of there being strength in numbers as outlined by the minister is clear, and joining a large and successful trade partnership is therefore well worth the price of having to agree to a set of rules drawn up by the existing members and submitting to the judgements of the partnership’s courts. We need to keep reminding ourselves that it’s nothing like being part of the EU’s Single Market, even if that’s only because the benefits are so much smaller and under the new partnership the courts meet and arrive at their decisions in secret rather than in a more public and accountable fashion. And in what might well look to the remaining EU members as an echo of the past, the new kid in the bloc is already preparing to demand that it has its own way on who else might be allowed to join.

It's easy enough to mock, but it’s a lot harder to understand what on earth might drive anyone to believe that a small benefit from a far away trade partnership is better than a large benefit from one much closer at hand. Badenoch’s claim that it is like buying into a start-up is an interesting one, basing the decision on faith about relative economic growth rates into the far distant future, although it rather overlooks the fact that most investments in most start-ups fail. The argument that economic growth in the Pacific will be faster than in Europe probably stands up only if China is included; but that is not part of the plan and, even in China, growth is stalling.

I have a rather different theory about the potential attraction to the Little Englanders with their dreams of Global Britain, and it’s all about harking back to the past. Of the 11 existing members of the partnership, 6 are former British colonies and use English as an official language (4), a recognised language (1), or the main business language (1), so (unlike those pesky Europeans), they are not proper foreigners at all. Those who dream of Empire 2.0 fondly imagine that all those countries and their inhabitants see England (and England is what they tend to call it even if geographically inaccurate) as the motherland, the country that gave them their laws, customs and culture. This is England’s opportunity to place itself, once again, at their head and to provide them with the guidance that they’ve missed so much since foolishly becoming independent. From that perspective, their history is ‘our’ history; they share in the glory of empires past and dreams of empires future. It’s utter tosh, of course; exceptionalism always is. But never underestimate the power of exceptionalist tosh to drive decision-making either consciously or sub-consciously, even if – perhaps especially if – the decisions are economic madness.

Is 'cheating foreigners' really UK foreign policy?

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There was plenty of evidence that Boris Johnson never intended to implement the agreement that he signed with the EU even before the agreement was signed, and the evidence is piling up even higher now. The EU must take its share of the blame here – given the very public history of mendacity and duplicity throughout Johnson’s career, they really have no excuse for believing that they could trust him. Believing that he really, really wouldn’t sign an agreement which he had no intention of honouring showed a high degree of stupidity and gullibility.

Johnson’s former bestie, Dominic Cummings, has ‘excused’ Johnson’s behaviour by arguing firstly that he wasn’t lying – he just doesn’t know what truth is, and was clueless about what he was signing up to – secondly that it is part of the PM’s job to cheat foreigners, and thirdly that the EU, China and the US regularly break the rules in agreements to which they have signed up, so it’s nothing unusual. It’s not exactly helpful to be defended against a charge of lying by being called stupid and ignorant, but it’s unlikely that Cummings was trying to be helpful anyway.

He may have a point, though, about others breaking rules at times. It’s disingenuous to suggest that there’s some sort of moral or legal equivalence between ignoring a few parts of an agreement if they’re found not to work and making an agreement which you have no intention of keeping – negotiating in bad faith from the outset is on a rather different scale – but it’s true to say that not all countries adhere to all parts of agreements which they’ve signed. It’s notable, though, that the trading blocs he specifically named (China, the EU, and the US) just happen to be the three largest and most important in the world. The biggest fish in the pond have more freedom to do as they like, however much many of us might dislike that fact. The UK, however, has chosen to opt out of being part of a big fish in order to become a small fish; the idea that it can behave with the same degree of impunity as the school yard bullies goes to the heart of the delusion which underpins Brexit. If the little kid wants to behave like one of the big bullies, he’d better make sure that at least one of the big kids is going to protect him. Alienating all three, aka ‘cheating foreigners’ as Cummings puts it, is unlikely to end well. As we’re all about to find out, unless there is some rapid backpedalling.

Fire, aim, ready

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Over the past couple of decades, a whole new management approach has been built around the idea that businesses have traditionally spent too much time preparing and targeting rather than acting, and the slogan which sums it up is “Ready, Fire, Aim”, the assumption being that doing something is the most important part and that any errors or problems can be corrected later. As a mantra for business, it’s a little over-simplistic, but it has some merit in discouraging over-analysis and delay. As a mantra for governments, its value is rather less clear, but that hasn’t stopped the current UK government, which even seems to have taken it a bit further – the slogan is more like “Fire, Aim, Ready”. Act first, think about what you were trying to achieve next, and only then ‘prepare’ (or in this case seek to overcome the problems caused by taking the first step without even thinking about the second).

Brexit had to be ‘done’, even if they didn’t know what they were trying to achieve and were obviously unprepared either for the negotiations or the consequences. They signed up to a deal, over Northern Ireland in particular, the consequences of which they appear to have completely failed to understand or consider. And when the other party to the deal, the EU, seeks to implement – and demand that the UK implement – the deal that they have signed rather than agree to a complete renegotiation, this is portrayed as being utterly unreasonable.

Today it appears that, in his haste to sign up to a deal on tax in advance of the G7 meeting, the ex-banker in 11 Downing Street appears not to have noticed that the deal he has struck will hit banking profits. He, too, wants everyone else who is party to the agreement to agree to renegotiate the detail.

And then there was yesterday’s story in the FT about Britain’s new Boris Boat which is, according to the government, going to be built entirely in the UK to show the prowess and success of UK industry and skills. Except that the government signed an agreement with the WTO last year under which shipbuilding for non-military purposes (unless by promoting trade they mean something akin to the opium wars) is very clearly not excluded from the requirement to open up bidding to companies in other countries.

All this could just be down to utter incompetence or the adoption of a misunderstood and inappropriate management slogan. But the FT story may have hit the nail on the head, albeit unintentionally, with this quote from Dmitry Grozoubinski, a trade expert who is visiting professor at the University of Strathclyde: “The government can’t simultaneously present itself as a champion of the rules-based trading system and retain the freedom to ignore those rules whenever politically expedient.” With all due respect to the expert concerned, I rather suspect that that is exactly what the government thinks it can do – and is doing. Nobody can say that we weren’t warned. Johnson and others have said often enough that they want the UK to be ‘buccaneering’, and a key aspect of piracy (as it is otherwise known) is precisely a disregard of the rules which apply to everyone else. As the infamous letter from a teacher at Eton about Johnson makes clear, disregard for any obligations to others is, and always has been, a central character trait. Coupled with an unshakable belief in the truly exceptional nature of the English ruling class, it’s an infallible recipe for turning the UK into the rogue state which it is rapidly becoming. Time to depart.

Flags, boats and status symbols

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There are some circumstances when doing something unique which no-one has done before can be a stroke of brilliance, but it’s much more commonly the case that there are good reasons why no-one has done it before. Certainly, taking a brief pause between that flash of inspiration and moving forward with the implementation provides an opportunity to at least ask, before committing resources to a project, exactly why no-one else has tried it before. That is generally a sensible question to which there are likely to be some very sensible answers. So when Boris Johnson referred to the proposed replacement for the royal yacht with the words “This new national flagship will be the first vessel of its kind in the world, reflecting the UK’s burgeoning status as a great, independent maritime trading nation”, my first thought was to wonder why it would be the first of its kind (closely followed by wondering how the word ‘burgeoning’ could be realistically applied to the trade of a state busily downgrading its most important trade links).

Although being presented as a replacement for the former royal yacht, it’s actually a government boat, which would only be made available to royals when they’re on government business, and the royals themselves already seem to be trying to distance themselves from Johnson’s latest flight of fantasy. The claim is that the new boat (the price of which has already doubled from £100 million to £200 million since Johnson first started promoting the idea) would be “…used to host trade fairs, ministerial summits and diplomatic talks as the UK seeks to build links and boost exports following Brexit.” Whilst it’s easy to see how it might appeal to those who regret the end of British gunboat diplomacy, it’s harder to see what it actually means in practice. If the UK wants to persuade another country to offer it preferential trading terms, why would it believe that asking that other country’s negotiators to meet on UK territory in the form of a boat in one of their ports is more likely to be successful than actually meeting on that other country’s territory in its seat of government? It sounds like just another expression of that strange English exceptionalism, which assumes that lesser countries (i.e. everybody else) look up to the UK and will be suitably impressed by a big boat with lots of flags on it. Are ministers visiting those other countries really going to spend a week or so sailing there, or are they actually going to send the boat along first and then fly out to join a floating palace which may well be berthed some distance away from the capital (New Delhi, for example, is well over 1000 km from the sea)?

Like most of Johnson’s grand schemes, it looks to have been poorly thought through, and to be more about flying union flags semi-aggressively in the ports of other countries than about twenty-first century trade or diplomacy. It’s a status symbol rather than a practical approach to building links, but any state which needs an expensive status symbol to boost the ego and self-image of its rulers is a state which is already failing.

Cheese, tea and uncomfortable chairs

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One has only to remember her infamous speech about cheese to realise that bizarre, Liz, and Truss are words that sit together in an entirely natural way. Indeed, any mention of the UK Trade Secretary without using such an adjective would be, well, bizarre. The story which emerged this week when the media were briefed by her ‘allies’ (and ‘bizarre’ would also be a fitting description of the thought processes of anyone who thought that such a briefing was a helpful act of friendship) that she intends to pursue the UK’s trade talks with the Australians by tying the Australian Trade Minister to an uncomfortable chair and making him face her for 9 hours of talks until he agrees to her demands is wholly credible – even including my little embellishment about the use of rope and knots. I’m not sure which is supposed to be the most punishing aspect of this – the uncomfortable chair or spending 9 hours face to face with Liz Truss discussing the import and export of cheese. On balance, I suspect that the uncomfortable chair is an unnecessary extra.

In fairness, the Brexiteers did promise us a buccaneering approach. Being ‘trussed’ to an uncomfortable chair could be considered merciful compared to being made to walk the plank or being keel-hauled, those methods of persuasion favoured by the buccaneers of old (although it’s possible that those approaches are merely being held in reserve). It’s an astonishing way to approach trade talks with a supposedly friendly independent state, although whether the Brexiteers understand that Australia is independent rather than still a colony is an open question. Attempting to bully other countries into opening their borders to UK exports whilst simultaneously demanding that UK purchasers only buy British-made products suggests that they have learned little since the imperial parliament unilaterally defined the terms of tea imports to the Americas. Perhaps one of Truss’s ancestors had a hand in that, too.

Morality in trade

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There’s nothing particularly new about the idea that morality, standards, and values have a role to play in deciding whether, and with whom, to negotiate international trade deals. Whilst trade usually promotes greater prosperity, the impact of that on the way a country is governed is a lot less obvious. On the one hand, increasing prosperity may help to legitimise a regime and encourage people to be less critical of their own government; on the other, people who aren’t spending their whole lives scratching a bare living can find they have more time for involvement in debate and politics, and greater international links can help them to understand better the freedoms which they don’t have. So, whether increasing trade helps to suppress or encourage opposition to unpleasant regimes is far from being clear-cut – both sides in the argument can draw on some evidence for their point of view.

The question has come to the fore over recent weeks as the UK attempts the hopeless task of replacing what were, until this year, extremely close trading links with near neighbours with necessarily looser links with countries much further away. And there are some pretty unsavoury regimes involved. Some MPs in all parties have been questioning whether the UK should continue to seek trade deals with countries run by authoritarian regimes, countries which outlaw dissent, and countries which don’t respect human rights or international law. The concerns are valid; not all countries can be depended upon to uphold the same standards, and the issue, at its simplest, is to what extent any country should be signing deals with countries which adopt lower standards than itself.

The UK has, though, come up with a novel approach which could eliminate the question, and which is entirely in line with the Brexit way of thinking. It is that the UK should lower its own standards to match more closely those of the regimes with which it wishes to do trade deals. More authoritarianism, less democracy, clamping down on protest and dissent, opting out of human rights legislation, and breaching international treaties and laws – these are the core elements of the current government’s programme. Whilst this might remove any need for moral considerations when the UK is negotiating trade deals with similarly unsavoury regimes, that English sense of exceptionalism which characterises the current government’s approach may be preventing them from seeing the slight little problemette which may arise as a consequence, which is that other countries may simply add the UK to their own lists of countries with which signing trade deals raises some serious moral issues. Believing that morality in trade is a uniquely British value, and that morality can therefore be defined as being whatever the UK does, might just turn out to be as silly in practice as it sounds in theory.

Drawing perverse conclusions

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If a good trade deal exists between two countries (or trading blocs), it should be no surprise to anyone if producers in those countries take advantage of that deal to sell their produce. Neither should it by any surprise to anyone if the result of making it easier to trade with the partners to that deal means that producers concentrate their sales in those places to which it is easier to sell. That is, after all, the purpose of having a deal in the first place. It does, though, seem to have come as a surprise to the International Trade Secretary, Liz Truss, who las week expressed her concern that, by trading so successfully with the EU, Welsh farmers had put all their eggs in one basket.

It’s perverse, to say the least, to blame Welsh agriculture for making the most of favourable terms of trade rather than putting their time and effort into selling their produce on less favourable terms elsewhere. The more logical conclusion to draw would be that the existing trading relationship needs to be protected. Someone who can argue that “My job as international trade secretary is to make sure there are plenty of other markets for Welsh producers to sell into" rather than protect successful existing markets might just possibly be in the wrong job. But just in case there was any doubt about that, she went on to argue that amongst other potential markets for Welsh lamb is New Zealand – a country which is not only on the other side of the planet, it also has even more sheep per capita than Wales and probably the highest number of sheep per capita in the world. Next on the list will presumably be a deal to sell world-class British ice to Eskimos.

What is it with Liz Truss and cheese?

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Let me start with a full and frank disclosure: I like cheese, and I eat more cheese than is good for me. I am not, however, obsessed with cheese in the way that the International Trade Secretary seems to be. One of her early forays into the comedy circuit world of international trade was her infamous speech at a Tory Party conference in 2016, which (because it’s always worth another watch) is available here. As she makes clear, “That. Is. A. Dis-grace.” Although the disgrace in this speech isn’t really much to do with cheese imports.

Last month, she hailed the new trade deal with Japan, which more or less replicates the deal we previously had as part of the EU. The deal nearly foundered, however, on the vexed question of the Japanese desire for Stilton. Or rather, the lack of such a desire - their desire to eat it didn’t entirely match Truss’ desire to sell it to them. However, an eventual concession by the Japanese now allows the UK to sell them as much Stilton as the Japanese want, although there is, of course, no known mechanism in any trade deal to ensure that people want a product which they regard as being rather odd.

And earlier this month, Truss has dismissed all concerns about a trade deal with the US allowing in hormone-fed cattle or chlorinated chicken by arguing that the deal actually has more to do with shipping ‘artisan cheeses’ across the Atlantic. It’s a statement that demonstrates that her understanding of the dairy industry (to the extent that she has one) far outstrips her understanding of US trade priorities.

Now I don’t want to underestimate the importance of the dairy industry to those who work in it; and its importance is obviously greater here in Wales than it is in the UK as a whole. But cheese accounts for around a third of all dairy produce, which amounts to about 16.9% of agricultural GDP in the UK, which in turn amounts to around 0.61% of UK GDP. Simple mathematics shows us that cheese therefore accounts for around 0.03% of UK GDP. Anyone who believes that a marginal increase in exports in such a small element of such a small sector is going to make up for a Brexit-led slump in trade is either mathematically challenged, or else has been eating too much of the wrong cheeses. Trying to spot the silver lining, at least it's a step forward from one of her predecessors who apparently thought that the UK’s trade would be saved by ‘innovative jam’.

Pluses and minuses abound

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Prior to the 2016 EU referendum, the messages from the Brexiteers weren’t exactly consistent, but there were plenty of them willing to state that 'nobody' was talking about leaving the single market and that Brexit was simply about opting out of the political institutions and the ‘ever closer union’ of states.  Remaining in the single market would make a comprehensive trade deal the ‘easiest deal in history’ said one, and that could have been true just as long as the UK accepted the associated rules and standards.

Having won a majority on the basis of a series of mixed messages, it suddenly became obvious to them that such a scenario, often called Norway or even Norway⁺, was not a ‘real’ Brexit at all, since it involved continued compliance with all the rules to which the UK had previously agreed (and even, in many cases, initiated).  In the interests of ensuring an ever-purer version of Brexit, talk moved on to other scenarios, such as Canada⁺⁺⁺, or, in the worst case, no deal at all.  The latest iteration is that the best we can expect from the current government is Canada (with no pluses) or the alternative of Australia (which is the new name for ‘no deal’ since Australia has no trade agreement with the EU, but it sounds a great deal more voter-friendly than no deal).  I find myself wondering how long it will be before some Brexiteers start to propose North Korea^---, under which there would be no trade at all with the EU, sanctions on anyone who attempts to trade, and warships in the sea between the UK and the EU to enforce the trade ban.  And I understand that current trading arrangements with Mars allow the UK to set all the rules with no Martian input at all.  I just hope I’m not putting ideas in their heads.

Yesterday, Michael Gove went as far as to say that we don’t need any sort of agreement with the EU.  Strictly speaking, he’s entirely correct – we can trade with the EU with no agreement at all in place as long as we accept tariffs, quotas, rigid border checks, and a huge reduction in trade volume.  The PM himself said that there was no need for the UK to follow EU rules to get a deal, any more than he would expect the EU to follow UK rules.  Not for the first time, it underlines the English nationalists’ absurd belief that the UK and EU somehow enter the talks as equals, and ignores the fact that, on Day 1, the UK and EU will be following a common set of rules anyway – the question is about what happens when one or other decides to change those rules.

All trade agreements involve a degree of compromise around standards and regulations – even the basic WTO rules include provisions against state-subsidised dumping.  And the closer the alignment in regulation, the easier it is to reach agreement on tariffs and quotas for trade.  Or to put it another way, the purer the Brexit, the more barriers to trade with the EU.  What would help to ensure minimum barriers to trade would be some sort of framework for agreeing joint rules and a system for enforcing them.  I wonder why no-one’s ever thought of that before.  Oh, wait...

The basic problem remains that the nationalists driving Brexit are stuck in a mindset which believes that the UK has a right to be treated as an exception and the rest of the world will simply bow down before us.  And the worst part of it is that those who are cheering them on most enthusiastically are the ones most likely to pay the price in the end.

At the eleventh hour...

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With a matter of hours to go before the UK formally leaves the EU, the PM has finally admitted something which most of us have known all along, but which he and his fellow Brexiteers have spent more than three years denying – leaving the single market and the customs union means border checks on goods passing between the UK and the EU.  He isn’t quite putting it in those terms (he wouldn’t be Boris if he did) but is stating rather that the UK ‘is willing to accept’ border checks, as though we ever had any choice in the matter.  His stated reason for this latest climbdown is that it’s the only way that he can deliver on the promises made about this strange thing called ‘sovereignty’.  Reuters puts it more bluntly, reporting that he will also say that ‘sovereignty is more important than frictionless trade’.

The admission that there is – and was always going to be – a trade-off between ‘sovereignty’ and ‘free trade’ is hardly a revelation.  It’s a simple fact that all trade deals between countries involve such a trade-off; the question is always about how much sovereignty a country agrees to share in order to reach joint decisions (and ‘share’ rather then ‘cede’ is the correct term, despite what the Brexiteers have consistently argued), and in return for what economic or other benefits.  Had the Brexiteers been willing to debate it in such terms at the time of the referendum and since, I would have had more respect for their position, but they have, right up until the eleventh hour (almost literally), repeated ad nauseam that we could have frictionless trade without having to agree to any joint rules or regulations.  They might still have won the referendum, of course, because trade and economics were only part of the debate.  It was probably the part, however, on which their argument was shakiest, so they chose instead to lie repeatedly.

To some extent, that is now water under the bridge; the UK will formally leave later today, and accepting that there is a cost in terms of trade attached to the sort of future relationship which the UK will have with the EU is simply a necessary precondition to any sort of negotiation on the detail.  What they have yet to admit (but it will surely come when reality can no longer be denied) is that the same issue will arise in relation to any and every other trade deal that they attempt to negotiate – the closeness of the deal and the degree of friction in terms of tariffs, checks and bureaucracy are directly related to the willingness or otherwise of the UK government to agree to share sovereignty and agree some rules and process (and their enforcement) jointly with other countries and trading blocs.

It’s an issue of which most Welsh independentistas are more aware than the Anglo-British nationalists driving Brexit and is part of the reason why so many of us preferred to avoid the term ‘independence’ for so many years.  In a modern, globally connected world, no country can really ‘stand alone’ and exercise total sovereignty over all aspects of its own affairs.  To even attempt to do so requires either great size or almost complete isolation.  The question facing any state is always ‘how much, and in what areas, and in what institutions are we prepared to share sovereignty and make joint decisions?’.  The EU was never the perfect answer to that question but attempting to pretend that there isn’t even a need to ask the question isn’t a sensible response.  I’ve long hoped that, if there were to be a positive side to Brexit it would be in helping those who run the UK to realise, at last, that the UK is, as the Irish Taoiseach put it last week, a “small country”.  It looks like being a long process though.

Chancellor achieves new heights

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Last week, the Chancellor of the Exchequer did his best to sabotage any hope of retaining good access to EU markets by insisting that the UK will deliberately diverge from EU standards and regulations; this week he went to Davos and came close to starting a tariff war with the USA.  It certainly honours the government’s commitment to run talks with the EU and the USA in parallel rather than in series, but I hadn’t realised that the objective of doing that was to wreck both.  But, wait a moment – what was the Chancellor even doing in Davos?  It’s only a month since the PM banned all cabinet ministers from attending the gathering saying that they were going to be far too busy at home.  It was, of course, a ‘Boris Johnson pledge’, and therefore not meant to be taken seriously, but it’s a pretty blatant U-turn even by his standards.  Perhaps the PM thought that, after attempting to sabotage the EU talks last week, the Chancellor could do less damage in Davos than he could if he stayed in London.  If he did, the PM may have, to use a Bushism, seriously misunderestimated Javid’s capacity for following his own example.

Checking the assumptions

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Yesterday, there was an exchange of views in the media between the Chancellor, Philip Hammond, and the member of parliament for the eighteenth century, Jacob Rees-Mogg about the impact of a no-deal Brexit on the economy.  The former stated a negative impact of £90 billion, whilst the latter claimed a positive impact of £80 billion.  Clearly, both of those things can’t be true, but that doesn’t mean that either of them is ‘right’ either.  The problem with making projections is that they’re always going to be based on mathematical models, and those models are always going to be based on a series of assumptions; the difference between the two positions is based on the differences in the assumptions that they make.  The fact that the consensus of economists is closer to the position of Hammond than Rees-Mogg doesn’t make the consensus right; there could be an element of groupthink at work.  But the obvious reality that the Brexiteer position is an outlier should give some cause for detailed scrutiny to say the least.

At the heart of the difference in positions is the question of the value of new vs existing trade deals.  One thing both sides appear to be agreed on is that ‘free trade’ is a good thing which generates economic prosperity, although there is a question in my mind about whether it is always the good thing that it’s presented as being; that’s a question for another day.  If we start from a position of accepting that free trade can and does boost economies, then the difference between the two positions comes down to an assessment of which route offers the greatest amount of free trade.  Part of the Brexiteer argument has always been that the freedom to strike trade deals with a much wider market than that offered by the EU will lead to more free trade than the restrictions placed on us by membership.  And if some free trade is good, and a lot of free trade is better, then the logical conclusion is that completely free and open trade globally is best of all.  At a superficial level, that is the ‘attraction’ of Brexit.  There are two not insignificant problems with it, though.

The first is about what is the best route to opening up more trading freedom between countries.  Is it by taking the large trading blocs which currently exist and negotiating comprehensive deals between them, such as that recently signed by the EU and Mercosur, or is it by doing away with trading blocs like the EU and Mercosur and starting again at the level of individual states?  Asking the question is almost enough to answer it; a negotiation involving only two parties acting on behalf of 28 and 4 member states respectively is almost invariably going to be easier than having 32 countries each trying to negotiate individual agreements with the other 31.

And the second is about depth rather than breadth; ‘free trade’ is about more than tariffs and quotas; it’s also about standards, rules and regulations.  The ‘depth’ of the free trade arrangement between the 28 EU member states is much greater than that between the EU and, say, Canada (which increasingly seems to be the model put forward by the Brexiteers), but increasing depth necessarily requires increasing alignment in a whole range of areas.  Rules end up being made jointly rather than unilaterally, and it is precisely that to which Brexiteers object.

In the light of those two factors, the claim by Rees-Mogg that no-deal produces more economic benefits than continued membership depends on an assumption that increased breadth with countries further away more than compensates for reduced depth with countries on our doorstep.  One of the things that I learned in Maths many years ago is that any result which fails the ‘reasonableness’ test (never mind what the numbers say, does it look or feel credible?) probably contains an error in the workings somewhere.  The Rees-Mogg claim seriously fails the reasonableness test, making it look like a number generated to try and ‘prove’ a point rather than one which owes anything to the normal rules of mathematics.

For all their talk about the glorious benefits of the trade deals which the UK will be able to negotiate in the future, I’m not convinced that free trade is actually of much importance to the Brexiteers at all.  If it really was the driving force that they claim, they would be pushing for more deals like the EU-Mercosur deal, and for those deals to be deeper, rather than seeking to walk away from them and start again with a clean sheet (which is more or less what WTO terms means).  Prioritising breadth globally over depth regionally is a characteristic more associated with wanting to secure an advantage by working to looser rules than those binding other countries than with wanting to increase trade.  It makes eminent sense to a country which is – or believes that it is – in a position to impose its will and its trading terms on weaker countries.  That is, of course, exactly the trade model on which the British Empire was built (and the one which Trump is attempting to pursue using America’s might).  That’s at the heart of the Anglo-British not-nationalists-at-all Brexit fantasy – a yearning for the past ‘glories’ of empire, and an unwillingness to accept the realities of the twenty-first century.  But believing really hard doesn’t create a power and influence which no longer exist and producing numbers which are simply unbelievable doesn’t turn fantasy into reality.

A five-point plan

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Politicians seem to revel in having multi-point plans, and the probable future Prime Minister is no exception, even if he hasn’t yet quite managed to formulate it in those terms.  Perhaps I can help a little by distilling his recent statements to a few short points:

1.    He will withhold payment of monies which are legally due to the EU unless they agree to break their own rules on the single market and abandon a member state, namely Ireland.

2.    He will immediately start negotiations with the US for a trade deal to come into effect by 31^st October, even if starting such negotiations is a direct breach of treaty commitments to which the UK has agreed.

3.    He will unilaterally apply the rules of the General Agreement on Trade and Tariffs to a situation in which they can only be used where there is an agreement in place - without first coming to such an agreement.

4.    He will tell Trump that instead of the UK following US food standards, the US will have to follow UK standards.

5.    He will cut taxes whilst at the same time increasing expenditure and committing to reducing public debt.

All of the above will be achieved by a generous application of optimism and determination, by being nice to Trump, and by believing very, very hard.  What could possibly go wrong?

In other news, some of the defeated leadership candidates are apparently already gearing up their campaigns for the autumn Tory leadership election.

A brief flash of light

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Most of the time, the Prime Minister does an excellent impression of cluelessness, combined with an ability to believe that dead horses are in fact full of vigour.  Like the shopkeeper in the famous Monty Python sketch, she stubbornly insists that the horse is either sleeping or temporarily stunned.  No matter how many different people point out with varying degrees of anger that the horse has indeed gone to meet its maker, she continues to argue that it merely needs the right encouragement to return to life.

And then, just occasionally, and apparently by accident, she stumbles upon an obvious truth, and comes out with an entirely sensible statement.  Responding to a question from POLITICO this week, she said “Just think about this: If having those EU regulations stopped good trade deals, how come the EU has done trade deals with countries around the rest of the world?”.  It’s a remarkably astute question which goes to the heart of the ridiculous assertion by the Brexiteers that the EU stands between the UK and trade with the rest of the world.  In fact, the UK benefits from a huge range of trade deals negotiated by the EU on behalf of all its member states, leveraging the sheer size of the EU market to obtain more favourable terms than any one country would obtain acting alone. 

This flash of insight was short-lived however.  Having so easily demolished one of the key arguments of the Brexiteers, instead of going on to ask the obvious supplementary (‘So why are we doing this?’), she reverted to flogging the dead horse by repeating the mantra that we can have both frictionless trade with the EU and opt out of the single market in order to duplicate the trade deals which the EU is doing anyway.  Darkness returned.