On the face of it, Donald Trump’s threat to impose general import tariffs of 10 to 20 per cent on all goods – and much higher levies on those from China – is bad news for Britain, the US and the world. That protectionism makes us poorer is a lesson which seems to have to be re-learned every generation.
The last time America was forced to learn the hard way was when George W Bush tried to protect the US steel industry with punitive tariffs on imports of steel in 2002. A US government review later concluded that the tariffs had cost 200,000 jobs in US by increasing the prices of raw materials for manufacturers – which was more than the 190,000 people employed in the entire US steel industry at the time.
Keir Starmer’s government should lose no time in pressing to reopen trade negotiations
But do we really need to be quite so worried, and see it as a return to the 1930s when governments attempted to get themselves out of the Great Depression by shutting out imports? Perhaps not.
Firstly, we know Trump’s methods well by now. His modus operandi is to make grand threats – and then surprise people by being a lot more accommodating than they imagined. His first term of office began in the same way, with him declaring a trade war with China and threatening to levy punitive tariffs on the rest of the world by saying ‘trade wars are easy to win’. Yet by the time of the G7 summit in 2018 he was asking fellow leaders ‘why not go to zero tariffs?’.
He pulled the US out of the Trans Pacific Partnership – an embryonic free trade area – and threatened to pull the US out of the North Atlantic Free Trade Agreement (NAFTA) between the US, Canada and Mexico. Yet in 2018 he proposed, and signed, the USMCA – the US-Mexico-Canada Agreement – which replaced NAFTA on broadly similar terms.
To judge Trump by his actions rather than some of his words, he is far more inclined towards free trade than is Joe Biden, who gave us the Inflation Reduction Act. This is a protectionist device dressed up as a climate initiative and given a name so dishonest it is on a level with the German ‘Democratic’ Republic. It is designed for one purpose: to keep foreign-made green stuff out of the US.
Secondly, a general tariff of 10 per cent would not necessarily be a disaster for trade with the US anyway. Punitive tariffs – such as those of 100 per cent or even more – kill off trade. But at 10 per cent a tariff is just another tax, and one which in many cases could be absorbed. We are, after all, used to paying 20 per cent VAT on most goods. If the US and its trading partners all imposed 10 per cent import tariffs on each other and used the revenue to cut corporation tax – or spending taxes like VAT – it would not necessarily be a bad thing. It would provide a modest incentive for consumers to buy products from their own country but would hardly plunge the world into a dark age.
Thirdly, Trump has indicated in the past that he is inclined to treat Britain favourably. Had he survived in office after 2020 it is very likely that we would be now have a trade deal with the US – allowing UK companies to sell goods and services there on much better terms than EU companies, and providing a tangible benefit from Brexit.
Keir Starmer’s government should lose no time in pressing to reopen negotiations. Never mind about the rude remarks ministers have previously made about Trump – as Pat McFadden pointed out yesterday, if the President-elect went in for long-term grudges he would never have picked JD Vance as his running mate. People who have called Trump a fascist in the past are in good company.
But to negotiate a free trade deal – or at least a more favourable trading relationship – with the US will require the government to risk upsetting British farmers even more than they are already upset by the changes to inheritance tax. We are not going to get better trade terms with the US unless we are prepared to open up our agricultural markets more and stop the nonsense like pretending chlorine-washed chicken is a threat to health: we already happily eat chlorine-washed salad. Reinstating a more generous inheritance tax deal for genuine farmers might be a way of managing their objections.
It might also require something which many Labour figures will consider unpalatable. But why not appoint Nigel Farage as Britain’s ambassador to the US? Not only is Farage inclined towards free trade – contrary to his popular reputation as a Little Englander – there is no one in Britain who has a more influential relationship with Trump. Starmer should take a deep breath and seize the initiative. Britain could well come out of the Trump presidency rather well.
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