Hamish McRae

Why Starmer needs Trump

Keir Starmer (Getty Images)

Do we have to choose between prioritising European or American trade? Let’s hope we don’t, because we need both. But the question has sharpened this week for two reasons.

The less important one is that Maros Sefcovic, the EU’s new trade commissioner, has suggested that the UK might join the Pan-Euro-Mediterranean Convention, a group of 23 countries with economic ties to the EU, including Norway and Switzerland, but also Ukraine, Turkey, Israel, Algeria, Morocco, Jordan, Lebanon and so on. It’s not a free trade area or anything like that, merely an agreement to foster trade by streamlining things like rules of origin.

Our relationship with the EU will toddle along, but that is the past

As William Bain, head of trade policy at the British Chambers of Commerce, explained, joining the group ‘would align rules and regulations on both sides in relation to the sourcing of components and raw materials used in exports.’

That would make exporting to the EU a bit easier by fixing a glitch in the present agreement. So not a bad idea, though the benefit to the UK would be pretty marginal. There is, however, a huge problem. The timing is dreadful. The government has said we are not interested, presumably because it is frightened of igniting Brexit concerns – all that red line stuff. But there is something much bigger happening right now. There will be a punch-up between the US and the EU over trade policy and we absolutely do not want to get caught in the middle. Indeed, we want to distance ourselves from the EU as much as we possibly can.

Donald Trump said on Monday that the EU countries did not import enough from America and he would ‘straighten that out’. On Tuesday he bumped up the rhetoric. ‘They treat us very, very badly,’ he said of the EU. ‘So they’re going to be in for tariffs. You can’t get fairness unless you do that.’

We have to assume, or rather the EU has to assume, that he means what he says. Wisely, Europe’s response has been conciliatory, even gracious. It’s down to Maros Sefcovic again to try to smooth things over. In an interview with Politico in Davos, he said: ‘We listen very carefully to the messages coming from there, from the White House. Our message is very clear: we are ready to engage. We want to put on the table [a] package of cooperation. And we are ready to discuss all the concerns of our American partners and take it from there.’

So there will be some sort of deal. Doubtless it will be more a package of concession than one of cooperation, for that is the way the world works now. The US has the stronger hand to play and Europe knows it. But what do we Britons do, aside from not getting caught in the crossfire? In fact, this is a huge opportunity, because for once our interests and those of the US are pretty much aligned. There is a general point here, and a specific one.

The general issue is that both the US and UK need to open up global trade in services. The US is the world’s largest exporter of services, the UK the second largest. While there has been massive pushback against international trade in goods, there has been very little against international trade in services. So globalisation is gradually shifting from trade in goods to trade in services.

But there are still massive barriers, and in one particular instance these have increased in recent years. Britain’s ability to sell financial services to Europe has been deliberately curtailed post-Brexit. That has damaged the City of London, but it also worked against all institutions, notably US ones, that used the UK as a base from which to export. They have had to go to the expense of setting up or expanding local offices within the EU to do so. There has been damage to the City, though the jobs exodus was smaller than predicted, but also damage to US interests. Actually there has also been damage to Europe, which has had to accept that it is very difficult to cut London out of the loop. Just this week the EU has agreed to keep clearing financial balances in London until 2028. The original deadline was 2022.

Opening up Europe for US services exporters is probably not a priority for Donald Trump, and the one effect of Europe trying to shut London out of selling services to the EU has been to push business to New York. But the broader point about US/UK mutual self-interest stands. We just have to play our hand more cleverly than we have in the past.

The specific issue is how to align our interests with those of the US in the next great commercial game, one that will run for a decade and more. It is how to extract value for the UK from wherever generative AI takes the world economy. This is so uncertain, so complex, that whatever steps any government takes now – be it either in encouraging, or investing, or regulating – will have to be revised. But one thing we do know is that getting Big Tech America onside is a key to making sure that the UK is the main AI development centre in the European time zone.

That means getting our main regulator, the Competition and Markets Authority, to create a nimble framework. It clearly wasn’t doing so. For example, the deal between Microsoft and OpenAI got stuck in the pre-notification stage for months. The government has been faced with a raft of complaints about the CMA, so the head of it, Marcus Bokkerink, was sacked this week and replaced by Doug Gurr, former head of Amazon’s UK operations. He is the interim chair, but if the government has any sense they will do whatever it takes to persuade him to stay. He is can-do. As director of the Natural History Museum he has revitalised it over the past couple of years, and is coming to understand how to get things done in London political circles. And of course he understands Big Tech America.

This appointment shows the government is beginning to grasp what really matters as far as our future trade are concerned – and what doesn’t. Our relationship with the EU will toddle along, and from a low base will get somewhat better. But that is the past. Our relationship with the US will be transactional. We should be cautious about any kind of overall trade deal, because the costs may be higher than the benefits. But establishing as decent working relationship as we can with Donald Trump and Big Tech America is the future.

Comments