FT premium subscribers can click here to receive Trade Secrets by email.
Hello from Brussels. Obviously we’re a long way from the action here, but it looks to us like the Great Negotiator got rolled in his dealings with China. Donald Trump’s first phase agreement (let’s be honest, probably also the last phase agreement) with Beijing seemed pretty shallow and one-sided. Links to ours and others’ thoughts are below.
Today’s main piece is on Brexit. After an observation or two on the forthcoming talks between London and Brussels, we’ll indulge in a fit of pre-emptive nostalgia to muse on how much better the UK made EU trade policy, and how it’ll be missed as France gets a bigger say. Today’s Tit for Tat is with Arancha González, executive director of the International Trade Centre, while our chart of the day looks at US-China tariffs.
Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com, or email me at alan.beattie@ft.com.
Brexit Britain heads forward to the past
There has been enough ink expended and pixels produced on the UK general election already to turn the Channel black. So let’s be brief. Where does the election leave Brexit? The obvious superficial conclusion is it’s strengthened Boris Johnson’s hand in dealing with the EU. Johnson now has a company of troops so loyal they will lead him over the no-deal cliff. Ergo the EU is more likely to make a deal in case its own member states get dragged into the abyss.
But you can’t credibly demand what the other side can’t give. A fully-fledged “super Canada plus” trade deal by the end of 2020 including services, regulation and all the rest of it, while still escaping the European Court of Justice and the EU legal order, is fantastical. It isn’t practically possible to negotiate a comprehensive schedule of services obligations inside a year. You can assemble an army as big as you like to demand a unicorn, but the unicorn ain’t coming.
So let’s assume, because it’s fairly obviously true, that Johnson is a chancer who wants to stay in power rather than a hard-Brexit ideologue. In that case his victory strengthens him not against the EU, with whom he has a temporary coincidence of interests, but against his domestic Brexit no-deal headbangers. As with the Irish border, he can renege on yet another promise and again surrender to superior EU firepower while claiming victory, and push the deal deadline well past 2020. This would be our bet.
We’ll see soon enough. In the meantime, it occurs to us that history has brought the UK to a darkly ironic pass given its past relationship with the EU, and before it the EEC.
What will the UK and EU be having the long-term debates about? Access to the single market, making said access contingent on freedom of movement for workers, trying to replicate the EU’s trade deals. Which member state is likely to be a pain on those subjects? France, obviously. This is an irony so huge you couldn’t transport it from Dover to Calais on the biggest ship you’ve got. These issues have been persistently pushed by UK and routinely opposed by France for decades. London has wisely supported and Paris wrongheadedly opposed liberalisation in almost every aspect of internal and external trade for the past 40 years.
The single market in goods was a largely a British (indeed a Thatcherite) project. The reason the mythical German carmakers never turned up to save the UK in Brexit talks was that they care much more about the overall integrity of the market rather than one tariff on one specific export destination. Right from the single market’s creation it was weakened by France demanding rigid regulatory harmonisation rather than flexible mutual recognition. The fate of the single market in services is a similar story.
Reform of the wasteful and protectionist Common Agricultural Policy: backed by London, opposed by Paris. Light-touch trade defence measures: ditto. Almost every trade deal you’ve ever heard of: ditto. Accession for eastern European countries after the fall of communism: ditto. Defending freedom of movement for workers: ditto.
And what was France’s big idea that the UK opposed? That towering triumph of economic integration, the creation of the euro. I guess we credit France for now wanting some sensible reform of the eurozone’s governance. It had to be right about something eventually.
So now the UK has turned its back on decades of successful liberalisation and is heading towards economic separation, feebly concealed behind a flimsy narrative about Global Britain. Meanwhile, French president Emmanuel Macron, the most confident head of government in Europe, wants to throw up blocks to foreign investment and public procurement, moans about trade deals as a matter of course and thinks promoting the open society means opposing EU accession from strategically important countries, giving an inflammatory interview about Islam and immigration to a hard-right publication, and sucking up to Vladimir Putin. And he is the EU’s idea of a deregulatory centrist liberal.
No matter how tired they are of the Brexit saga, free traders in the EU will miss the Brits when they’re gone. Good luck, Britain outside the EU, and bon courage, the EU without Britain. Britain will need it more, to be fair, but you’ll both need it.
Charted waters
As part of the phase one trade agreement with China agreed on Friday, the US cancelled a further set of tariffs — the List 4B round on Chinese consumer goods, including laptops and toys — that had been set to kick in yesterday. Toy and video games importers had already been prepared, stockpiling earlier than usual this year.
Tit-for-tat
Arancha González, executive director of the International Trade Centre, joins us to answer three blunt questions.
How disastrous is it that the WTO’s appellate body is not functioning any more? Do you have a plan to get the US back on board?
The demise of the WTO appellate body leaves the organisation critically wounded. The system has served its members well, including in preventing large-scale protectionism during the 2009 financial crisis, but cracks have appeared in its functioning. Two things are clear: the US needs to hear from the rest of the membership that the system needs serious change; the rest of the membership needs to hear from the US that the reform is about the 1995 binding dispute settlement system, and not to go back to the pre-1995 voluntary one. Both sides need to ground their words in actions by going back to the negotiating table.
What is your reply to developing market leaders such as Jair Bolsonaro who claim that the EU’s focus on environmental issues in trade is really a form of protectionism?
European citizens have spoken: they demand ambitious measures to address climate change, which is why the EU aims to be carbon neutral by 2050. These demands are genuine, and frankly not unlike what we see citizens asking in Brazil, India or Indonesia. The more international co-operation there is in reducing emissions, protecting the oceans and promoting sustainability, the less there will be a need to use trade as a means to force or compensate for global inaction.
Do Thursday’s measures aimed at strengthening the EU’s ability to impose tariffs risk further retaliation from the US, not to mention other WTO members? Where does the tariff war end — or is it a case of hoping for a new US administration next year?
What the EU has done is arm itself with a weapon to plug the hole left by the US stopping the WTO appellate body. Of course if every country does the same, we end up with a unilateral dispute resolution mechanism that will only increase volatility and uncertainty. Unilateralism is no more than an illusion: a very short-term feeling of victory for a very broad and prolonged pain. It is therefore no surprise that countries are going back to negotiations to resolve their differences. The broader the negotiating table, the more effective the solution will be.
Don’t miss
- The limited agreement between Washington and Beijing to pause their trade war has cheered markets — but the detente is heavily dependent on the success of a tricky implementation phase over coming months. James Politi analyses the deal.
Read more - Is the USMCA trade deal under threat? The North American pact was finally agreed with amendments last week, but now Mexico has reacted angrily to what it says are additional details in the law to be debated in the US Congress this week.
Read more - UK prime minister Boris Johnson insists he can broker a trade deal with the EU by the end of 2020 even as Brussels ramps up warnings that it may be impossible to complete the negotiations in time, creating the risk of an economic “cliff edge”.
Read more
Tokyo talk
The best trade stories from the Nikkei Asian Review
