I swore to myself — I swore — that I wasn’t going to get drawn into following UK trade policy and instead would keep my mind on higher and more substantive things. But the spectacular implosion of the worst prime minister in British history can’t pass without comment. I was tempted to headline today’s newsletter “The head clown leaves but the trade circus rolls on”, except that first, someone else did similar, and second, if you ask professional clowns about Johnson you get a fierce denial that he’s one of them. But I digress. Today’s main piece muses on the direction in which policy is likely to go under a new British leader and looks at the competing strains of thought, if we can dignify them with that term, in the UK’s Conservative party. Charted waters looks at the causes of the UK’s petrol price increases. Thoughts on this or anything else? I’m at alan.beattie@ft.com, or reply to this email.
The Conservatives’ destructive streak runs deep
The last time I wrote about this I opined that the UK’s policy with regard to the EU and the Northern Ireland Protocol was obviously nuts but the modestly important sideshow of non-EU trade policy was actually pretty well run thanks to the competence of the civil servants and the liberalising instinct of certain ministers.
Seems I was a bit optimistic. Two weeks ago the UK not only decided to fiddle its own trade defence regime to continue imposing steel safeguard tariffs, but the government went out of its way to emphasise that it was probably breaking WTO law to do so. Governments have pretty blatantly flouted WTO rules before. A similar occasion was George W Bush’s steel tariffs of 2002, obviously aimed at winning the midterm elections of that year. But at least his administration went through the motions of pretending they were legal before losing the inevitable WTO case and lifting them in 2003.
Accordingly, I’m changing my standard analysis of British trade policy as follows. Its EU policy is bonkers. Anything non-EU is pretty well done if run by civil servants, but a roll of the dice once ministers start having ideas.
Sadly, it’s a long shot that any of the likely successors to Johnson are going to end the confrontations over the Northern Ireland Protocol. (This is another rule of thumb of mine that I might have to revise — that the UK always capitulates to the EU when asked to choose between confrontation and chaos.) Certainly, EU officials don’t think so. Even the relatively moderate former Remainer leadership candidates (Tom Tugendhat, Jeremy Hunt) feel the need to support the Northern Ireland Protocol Bill. The best we can hope for is that this is brinkmanship negotiation, not an actual trade war, but even that’s a really bad idea.
For the non-EU bit of UK trade policy (“and apart from that, Mrs Lincoln …”) the randomness in ministerial decisions obviously owes something to competing strands of thought, or perhaps of instinct, in the Conservative party. One is the standard attachment to free trade, usually rooted in some 19th-century Ricardian analysis, sometimes but not always combined with a quasi-imperial attachment to anglophone countries such as the US. The second, which is driving the Northern Ireland issue and the steel safeguards, is a British (and often specifically English) nationalism all about self-reliance and telling foreigners where to get off. Intriguingly, Margaret Thatcher managed to combine the two in one person, first being instrumental in expanding free enterprise in the EU by creating the single market but then turning against Brussels over its ambitions for social and political union. But I digress.
Two leading candidates to have done time in the Department for International Trade, Liz Truss and Penny Mordaunt, would place themselves ideologically in the first camp. Truss, courageously for an MP with a rural constituency, gave the Australians the big agricultural tariff cuts they wanted in the bilateral deal. Mordaunt’s free-trade Atlanticist views on trade are laid out in a speech she gave to the Carter Center in the US last December. It started with an ever so slightly exaggerated view of the UK’s standing. Brexit apparently means the UK “has made itself a player on the global chessboard, and the US needs to understand and recognise the UK’s new position”. Currently, those galaxy brain grandmasters in London are sending an undefended pawn marching recklessly towards the EU’s queen despite the US trying to warn them against. But I digress.
The problem with the free-trade view in advanced economies is that, with exceptions such as some parts of agriculture, regulations rather than tariffs are the big deal. You can’t have unilateral mutual recognition of regulations. Mordaunt’s speech at least recognised this, but was way too optimistic that the common values that apparently exist between the UK and the US will somehow get these things done. She wanted “outcomes-based regulation consistent with our common law” based on accepting equivalence with trading partners’ rules rather than the EU’s prescriptive rule book.
If Mordaunt wants some trenchant views on regulation and equivalence, she should talk to American parents trying to buy imported infant formula, London insurance companies going state-by-state to try to set up in the US, or Scottish haggis makers who’ve been banned from the US market since 1971 on esoteric food-safety grounds. The agreements the UK claimed recently with a bunch of US states aren’t much more than aspirational.
It’s a bit of a grim outlook for the UK and trade, and I’m going to do my best to going back to ignoring it. For a supposedly market-orientated party, the Conservatives have frequently shown serious hostility to open trade down the centuries. Thanks to their obsession with endlessly fighting battles with the EU whether from inside or out, they’re here again. The liberalising instincts of some ministers will ameliorate this a bit, but we shouldn’t expect the regime under the new prime minister to be much different from the old one.
As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.
Charted waters
Apologies to those who might see this as a UK-obsessed newsletter, but there was an interesting local analysis of a global concern at the moment — escalating vehicle fuel prices at the service station pumps. Upset among British motorists, including a go-slow by drivers that brought some motorways to a standstill, has fuelled resentment against the retailers providing their petrol, prompting an investigation by the Competition and Markets Authority.
The initial findings — that there was little evidence of fuel station operators inflating prices — show the uncomfortable truth, that in oil as in other vital commodities the problems are international in nature and in this case mostly owing to the breakdown in trade caused by a big supplier (Russia) being given pariah status by western trading partners and a loss of capacity owing to Covid-19. (Jonathan Moules)
Trade links
The FT reports that even US administration officials who support lifting tariffs on imports from China admit it won’t do much to reduce inflation.
Relatedly, the Economist says that Joe Biden is looking at other options than tariffs to take on China.
The WSJ reports on how one company tried to re-engineer its supply chains to remove China.
Commodity prices have fallen sharply in recent months, probably because of fears of recession hitting global demand.
Trade Secrets is edited by Jonathan Moules
Source: Economy - ft.com
