The US might favour us in a trade war – but there’ll be no one to trade with
Mr Trump’s old-style tariffs will put Brexit Britain in a tough position as the world heads to protectionism
Come back to us, chlorinated chicken! All is forgiven! Ridiculous as the chlorinated chicken debate might sound, in trade terms it’s actually the height of sophistication. The Brexit debate is also becoming increasingly sophisticated, but, thanks to Donald Trump, globally irrelevant. The White House’s imposition of massive steel and aluminium tariffs, and the subsequent trade war could actually be much more significant for our future than the small print of Brexit. Here we are, dancing to the experimental offbeat of regulatory alignment, tapping away to the modern pitter-patter of legal, institutional arrangements, while, across the pond, the US has broken out into the old-school, American honky-tonk of protectionism.
In the windowless rooms of Whitehall, where the modern music is playing and the clock is ticking anxiously forwards, it might be hard to hear. But step outside and you’ll hear the tootling strains of that old, protectionist song and the steady creak of a clock winding backwards.
Not long ago, most thought the old tunes were gone for good. In 2015, Pascal Lamy, former director-general of the World Trade Organisation, said that we were in the midst of a transition from a debate about “old” trade matters – tariffs, quotas, subsidies – to a new tussle, concerning administrative authority and standards (safety, environmental, animal welfare and other chlorinated chicken-type debates). Indeed, these are the issues at the heart of Brexit. But just as Britain and Europe are focusing on the problems of the future, the US is dragging us back to the past.
Mr Trump has been tapping away on this theme for some time, but it wasn’t until last week that he turned up the volume. An investigation supposedly started to assess the “national security” ramifications of a global over-supply of steel and aluminium provided the President with a pretext for slapping huge tariffs on imports of both metals.
In fact, the issue has nothing to do with national security and everything to do with Mr Trump’s general hostility to trade. The EU has threatened retaliation on niche all-american goods, such as bourbon and Levi’s jeans. On Twitter, Mr Trump declared: “Trade wars are good and easy to win.” His free-tradesupporting economic adviser, Gary Cohn, has now quit, leaving the field to trade adviser Peter Navarro, the brains behind the new tariffs.
Mr Navarro’s wish is to resurrect the US’S industrial base by cutting it off from the global economy. China is producing heavily subsidised steel and aluminium at a loss, its market signals jammed by the government’s need to keep millions of workers in their jobs. Knowing that it can’t keep this up forever, Beijing has actually started to shut down steel mills, but its production isn’t falling fast enough for Mr Navarro’s liking.
His plan is doomed to fail, though. The US already levies huge tariffs on Chinese metals. The new ones will instead hit capitalist countries. And no matter what the White House does, demand for steel and similar products just isn’t rising any more. In the long run, rather than stimulating domestic production, a trade war is likely to raise costs for the US economy, making it even less able to compete, and trigger a global downturn, dampening demand even further.
What makes Mr Trump’s trade war particularly dangerous is that it is coupled with an attack on the institutional core of the global trading system: the World Trade Organisation. Largely unnoticed in Britain, which continues to debate the merits of “the WTO option”, the Trump administration has spent the past year rendering the WTO dysfunctional, by refusing to ratify the reappointment of judges to the WTO’S court, meaning, in effect, that the world’s most important forum for settling trade disputes can no longer be relied upon to deliver timely judgments. The only recourse for countries annoyed by each other’s trade policies will soon be tit-for-tat retaliation. This is exactly the situation the WTO was meant to prevent – a trade war.
Just as this serious threat to our national interest is taking shape, Britain is mired in the technicalities of Brexit. We are in an invidious position. Either we stay inside a customs union with the world’s biggest trading bloc, totally subsuming our trade policy in order to avoid erecting new administrative barriers. Or we leave, regaining control over trade policy in a shaky WTO structure and within a much smaller market. To stay true to the spirit of the referendum and regain an independent voice on trade, so crucial to our interests, we should probably pick option two. But even Brexiteer free traders must admit it’s a dangerous time.
Unfortunately, the all-consuming task of Brexit has turned our attention away from the global discussion about trade. Mr Trump’s retrograde policy, for example, ignores the most important economic contests of the future, which will revolve around hi-tech manufacturing, biotechnology, education and training, renewable energy, recycling and artificial intelligence. China is surging ahead in these areas. Aspects of its regime, like the total lack of concern for privacy, are even helping it to seize the lead in areas such as algorithmic behavioural analysis and facial recognition technology, which is already in wide usage in Beijing.
What modern trade policy should focus on is how to square technology and the new geopolitics with democratic norms and rule of law. How can we compete with companies or states that aren’t subject to any privacy restraints? How can we lead genome research while respecting ethical limits on eugenics or genetic experimentation? In a Brexit context, how can we balance economic priorities, which favour international economies of scale enabled by regulatory cooperation, with democratic requirements, which favour autonomy and local politics?
Brexit is an attempt to consider these questions and it could be an opportunity to find a new way in an alliance of like-minded countries, from Singapore to Canada. But it is also a risky experiment that could instead become a modern form of protectionism, guarding our autonomy so jealously that new trade deals, which go beyond tariffs and tackle the new trade challenges, become impossible.
Mr Trump is trying to present a friendly face to his allies, suggesting that post-brexit Britain could be exempt from his new levies. That would at least help us to avoid participating directly in this dangerous trade war. But it will be cold comfort if he has, in the meantime, laid waste to the global economy. The Government likes to claim that Britain is proudly banging the drum for free trade. In fact, we are dangerously out of time.