Deal or no deal, trade will go on
ON FRIDAY, one chapter closes – and another begins. The UK departs the EU, leaving it clear to start negotiations on its future trading relationships with the world. There has to be some sort of legacy deal with Europe, which takes a bit more than 40 per cent of our exports. But we are free to improve our relationship with everyone else, including that with our largest single export market, the United States.
Rationally, it should be a golden opportunity. In practice, expect an ill-tempered summer ahead. Already the rhetoric is ramping up. Donald Trump hopes for a ‘tremendous’ trade deal with America, and US Treasury Secretary Steven Mnuchin expects such a deal to be done this year.
Ursula von der Leyen, the European Commission’s president, has said it is impossible to reach a comprehensive deal by the end of the year, when the transition period ends. She has also said that if the UK wants access to the EU market it will have to stick by
EU rules – something that the UK Government has said it won’t do.
I suggest, first, that we should not pay too much attention to anything the politicians are saying at the moment. This is pre-negotiation posturing. What will matter will be the detail and we will be well into the summer before we have any feeling of how close the relationship will be. It is in the self-interest of both sides to keep stuff moving, but politicians do miscalculate and they may again here.
Next, most trade around the world takes place without explicit deals. The UK has no deal with the US, China or Japan, but we do a huge amount of trade with them. The difficulty with Europe is that our economies have become closely intertwined so undoing the present arrangement is genuinely complicated. But whatever happens trade will continue.
Third, trade has to benefit both sides. This is not a zero-sum game where if one side is a winner, the other has to be a loser. That may be the rhetoric but it is wrong. If both sides do not benefit then whatever the deal, trade between them will inevitably fade.
Finally, I think that whatever happens this summer, our economic relationship with Europe will gradually loosen. It has been doing so for about 15 years, largely because the rest of the world has been growing faster than continental Europe.
The UK will also continue to grow faster than the eurozone for a number of reasons including demography.
But we need both to remain open to the world in our trading relations, and to figure out ways of making sure that the benefits of economic growth are more widely shared.
THE South Western Railway franchise is not sustainable. So said Grant Shapps, the Transport Secretary, and he warned that it might have to be renationalised. Alas, South Western is not alone in its problems. The Government had to take over the East Coast Mainline 18 months ago; Northern is in trouble; the TransPennine Express has just been warned by Mr Shapps that it has to improve its service.
There are two reactions to this. One is to call for the entire network to be renationalised. The other is to focus on the detail of what has been going wrong, rather than have a politicised response.
Those of us who remember what British Rail was like before privatisation will incline towards the latter approach.
Most people forget that rail usage shrank pretty steadily from a peak in the 1950s until it was privatised in 1994. Since then it has doubled. Indeed, rail usage is the second highest in Europe after Germany.
So let’s accept that the present system is a mess. But let’s hope too that the forthcoming Williams Review of the rail system has orderly, sensible suggestions rather than ideological ‘solutions’ that will then have to be undone.
THE Bank of England meets on Thursday to consider a cut in interest rates. A couple of weeks ago that looked on the cards. Given the surge in business optimism and the strong job creation figures that now looks less likely.
But ask yourself this. Would a quarter of a percentage point off rates make a blind bit of difference?
The UK will continue to grow faster than the eurozone