Let’s follow Trump and get tough on the EU
The EU will maintain a united front. The single market is indivisible. It has the strongest negotiating position in the world. We kept being told that it is impossible for the UK to haggle out a decent trade deal as we leave the EU, that there can’t be any compromises, and that we will just have to accept whatever Michel Barnier and Brussels decide to offer us.
But hold on. Donald Trump is on the verge of squeezing some major concessions out of the EU. He has haggled the Chinese into upping their investment in the US and he may well score a few more victories around the world over the next few months. It turns out that getting tough on trade, especially with blocs you run a big deficit with, actually works. There is a lesson in that for the UK. If we were a lot tougher with the EU, we’d get a better deal very quickly.
With less than a year to go until we leave the EU, Britain is no closer to securing a trade deal than we were on the morning after the referendum. Will we stay in the customs union? The single market? Will there be open borders for goods, or for services as well, will we apply our own tariffs and regulations, and will we be allowed to negotiate our own trade deals? If anyone knows the answers to those questions, they are keeping them a closely guarded secret.
What we do know is that the EU is taking a tough line. There is no sign of compromise, or flexibility, or a will to work out a deal for the UK. Can that change? President Trump may well be a blustering, dangerous buffoon, and his aggressiveness on global trade may well prove reckless and self-defeating. But he has also shown that it can get results. He started with a range of tariffs on steel and aluminium, which included European imports. Next he threatened to ban German cars, or at least impose huge taxes on them when they were imported into America. And guess what? There are now reports that Angela Merkel is ready to look at lower tariffs on automobiles.
There is certainly a good case for that. Right now, the EU imposes a 10pc levy on American vehicles. But all those Porsches and BMWS cruising along the freeways in the US only have a 2.5pc tariff. It doesn’t exactly sound fair. The US has been arguing for years that there should be a change to the tariff regime, and has got precisely nowhere. The result is the US runs a $22bn (£17bn) deficit with Germany in cars. It even has a $7bn deficit with us (those Jaguars and Land Rovers are popular in prosperous American burbs). Now the German auto industry is arguing for zero tariffs on both sides, which would be a great step forward for free trade, as Mrs Merkel looks ready to concede.
In May, China offered to buy more American goods in exchange for lifting the threat of investment restrictions. China is gradually opening up to foreign investment, but it is still incredibly restrictive for the world’s second largest economy. There is no Amazon in China, and no Netflix. The most dynamic American companies are excluded while Chinese firms sell plenty in the US. A few more rounds of tariffs and some upping of the rhetoric, and it would be no great surprise if you were finally allowed to watch House of Cards and The Crown in Shanghai or start ordering stuff from Amazon Prime in Beijing.
There is a lesson in that. Trump’s trade threats may not win him many friends. But they are turning out to be brutally effective. The UK should take note of that as we negotiate our way out of the EU. We should talk tougher and be willing to act where necessary. The threat of a ban on German cars or at least a 30pc tariff would certainly be effective. So would doubling the duty on EU wine – the UK is currently the second largest wine market in the world after the United Sates, so that would get the attention of the French and the Spanish. Sure there are differences with the US. We are not as big an economy, and we don’t have its muscle. But we are an important market, and we run a huge trade deficit with the EU, so import bans or tariffs will hit specific industries very hard.
Europe talks tough on trade. But because it runs huge surpluses, it is always going to be acutely vulnerable to retaliation. If the UK was tougher, we would get a far better deal – Trump has shown that Brussels caves in very quickly when its own jobs and companies are under threat.
‘Trump’s trade threats may not win him friends. But they are brutally effective’