Donald Trump is right: we can choose either Europe or the US, but not both Jeremy Warner
https://www.telegraph.co.uk/business/2018/11/27/donald-trump-right-can-choose-either-europe-us-not/
Ever since Theresa May’s ill-fated decision to call an election and the consequent loss of her majority, very little has gone right for Britain’s beleaguered prime minister. Having finally got Brussels to agree some sort of a withdrawal deal, it now seems overwhelmingly likely that her own parliament will brutally vote it down.
As is often the way with middle course strategies, her deal has ended up offending almost everyone. The country, and parliament, are too divided, too entrenched and immovable in their views, to allow for compromise. Remorselessly, apparently irredeemably, we are drifting towards the mother of all political crises, perhaps the biggest of many of our lifetimes. May’s only hope is that Brussels comes to her rescue, and offers sufficient in the way of concessions – say allowing the UK unilaterally to withdraw from the customs backstop – to get her over the line. But it is an increasingly forlorn prospect.
As if things were not bad enough, along comes Donald Trump to deliver, as is his way, the final coup de grâce, insisting in effect that Mrs May’s deal would be incompatible with a meaningful US free trade agreement. Since free trade deals with other parts of the world were meant to be the big economic dividend from Brexit, this is something of a blow.
But it was also only a statement of the bleedin’ obvious; the closer you are to one trading bloc, the less easy it is to strike a deal with another, and that’s precisely the dilemma that Mrs May’s deal has highlighted. By trying to stay close to Europe, she makes it very hard to be close to America at the same time.
Trade was always as much about geopolitical power and heft as the Ricardo-esque textbook ideal of mutually beneficial commercial interaction and progress. We’d like it to be the latter; but the way of the world is the former. Mr Trump has laid this harsh reality bare, demolishing some of the wilder fantasies about “Global Britain”, free to trade as it likes with the rest of the world once released from its European shackles. What Trump is saying is that you can have a deep and meaningful trading relationship with either the US or Europe, but not both; it’s us or them.
In this case, us seems scarcely more appealing than them. America is notoriously aggressive and unforgiving in the way it negotiates free trade deals; it is naive to think that the special relationship will cut the UK favours. This is an America First president. As with our negotiations with the EU, it will be a wholly unequal contest. And as with the EU, it will end up either in capitulation by the smaller country to the much larger economic interest or virtually nothing at all. We’ll be eaten for breakfast, and in our desperation for a deal to make up for the loss of Europe’s single market, we may well end up not much better than the fifty first state, the one time imperial master finally subservient to its former colonies. In terms of precious sovereignty, Trump’s alternative to the EU threatens to be out of the frying pan into the fire.
Let’s take this in stages. A bare bones free trade agreement, in which zero tariffs are agreed on all but protected industries such as agriculture, would be relatively easy to secure. But it wouldn’t add much to the economy, as tariffs are already quite low – just 3 to 4 percent on a trade weighted basis, and that’s including agriculture.
Even the more ambitious Transatlantic Trade and Investment Partnership, the once planned free trade agreement between the US and the EU, would have added only 0.14 to 0.35pc to GDP per head in the UK, according to estimates by the European Commission.
The leaked findings of the UK Government’s analysis of the potential gains of a conventional free trade agreement with the US came to a similar conclusion, just 0.1 to 0.3pc of GDP. In other words, negotiated, bilateral free trade agreements are not significantly better than trading on World Trade Organisation terms. The effect is only marginally beneficial.
But what we also know about free trade arrangements is that they are very sensitive to the depths of what is agreed. The deeper the marriage, the more significant the benefits. If meaningful steps are taken towards reducing non tariff barriers to trade, curtailing the need for border checks and conformity to variant standards, then they become correspondingly more important in economic terms. For good or ill, this is what Europe’s single market attempts to achieve – the removal of non tariff barriers to trade via harmonisation.
The problem arises because in aligning your standards with one bloc you make it difficult to align them with anyone else. For instance, if in reaching a free trade deal with the US growth hormones in beef are allowed, the UK would then be prevented from selling its beef into European markets.
It seems very unlikely that simply by leaving the European Union, Britain will break these cartel-like trading blocs and usher in a new age of unfettered, anything goes free trade. With different pedigrees and histories, regulatory regimes have evolved in ways that make them substantially incompatible, quite deliberately so in many respects.
Products and services can of course be tailored to meet the standards of each trading bloc, but to do so significantly increases costs and diminishes the benefits of trade. That’s the purpose of the single market – to reduce the costs of meeting multiple regulatory standards by removing them, and it’s why most economists believe there would be significant economic damage from leaving it.
Britain could of course attempt to replicate these benefits in any new trading relationship with the US, but it would mean bringing our non tariff barriers to trade into line with those of the US. Given its much bigger size, there is no doubt whose standards and institutions would end up supreme, even acknowledging the progress made in recent years on mutual recognition.
When it comes down to it, the real world choice is between the glorious isolation and purity of self determination and the compromised sovereignty of global trade, where to experience its full benefits you must be part of one bloc or another. Either way, it is not an appetising prospect. May has attempted to stay close to Europe, which is why many see her deal as a betrayal. But would it not be just as bad to roll over and let our tummies be tickled by Donald Trump?
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