The aggregate gains are distributed unevenly — witness how well the top 1 per cent have done
Philip Stephens
© Ingram Pinn/Financial Times
One of the things that has always puzzled me about Britain’s Brexiters is the casual assumption that free trade is a vote-winner. Boris Johnson promises a quick deal with US president Donald Trump. Japan, Australia and Canada are among others on the prime minister’s list. The voters, ministers say, will cheer these agreements from the rooftops.
They have been mistaken before. In 2016, Brexiters said nothing would be easier than striking a favourable bargain with the EU27. “We hold all the cards” ran the mantra. Reality proved otherwise. We are now in 2020 and negotiations will start only next month when Britain leaves the Union. Mr Johnson’s December deadline for an agreement creates a “no-deal” cliff-edge.
Still, ministers say that talks with others can proceed in parallel with those with the EU27.
Britain will soon have deals with nations from every corner of the globe. I have my doubts about this, but assume the predictions are right. Why, I wonder, would voters cheer?
Liberalising trade is good for us. For the most part, dismantling cross-border tariffs and regulatory constraints lifts economic performance and raises public welfare. This incidentally was Britain’s experience as a member of the EU. For all that it threw up serious inequities, the great wave of globalisation that began in the 1980s transformed the life chances of billions of people.
Good is not the same as popular, at least not in rich economies. The aggregate gains are distributed unevenly — witness how well the wealthiest 1 per cent have done. Trade deals create absolute losers as well as winners. Nowadays, we call the losers “left-behinds”. Living in Britain’s neglected coastal areas and small-town middle America, they voted for Brexit and Mr Trump. They prefer barricades to bridges.
Trade deals produce uncomfortable trade-offs. The farmer put out of business by imports is unlikely to be won over by being told that local manufacturers can export more. Objections are not confined to economics. Regulatory alignment creates disputes rooted in cultural preferences. The objections in Europe to chlorinated chicken from the US are really about animal welfare.
Typically, the complaints of losers drown out any thanks from winners. This explains why Mr Trump’s protectionism has the support of core working-class voters, and why the US Congress has set its face against any trade deal not stacked in favour of US farmers and businesses. Once free-trade Republicans have turned, well, protectionist.
British politicians have forgotten all this. Trade negotiations have been subcontracted to Brussels. But “taking back control” means assuming responsibility. In future, the painful compromises will be the property of the government.
Mr Johnson and Mr Trump may be chums but anything more than a basic deal with the US will be especially hard. Washington has said what it wants. Beyond removing tariffs and quotas on manufactures, the list starts with the liberalisation of agricultural trade. Next come free access for American business to public sector contracts, including in the health service, and safeguards allowing US pharmaceutical companies to set their own prices.
Generous regimes for data transfer and taxation of big technology companies also loom large.
And in return? Well, Britain would certainly benefit from tariff-free trade in manufactures and probably from fewer restrictions on its financial and professional services. The package may play well in Peoria. It is hard to say the same about the reaction in Preston.
On the face of it, opening the door to cheap food from the US, and for that matter from everywhere else, makes eminent sense. No one has been a harsher critic than Britain of the heavy EU subsidies for farmers. The politics are otherwise. Any thanks from consumers would be drowned out by the certain fury in predominantly Conservative-voting rural England.
Ministers are already on the defensive, promising to keep the EU ban on chlorine-washed chicken and hormone-fed beef. Even were the US to respect those red lines, the politics of a transatlantic deal are less than inviting.
How will voters in left-behind Britain weigh gains in the US for British bankers and consultants against bankrupt farms and higher prices for medicines?
Working-class enthusiasts for Brexit, after all, have never been free-traders. The let’s-be-a-European-Singapore contingent represents a small minority. The Brexit campaign’s main pitch was about pulling up the drawbridge against immigrants. Free of single market rules, the government would also throw its weight behind domestic industry. Mr Johnson campaigned hard on this “Buy-British” theme to win the general election.
Yet run down the list of putative partners, and the common denominator is their demand for looser immigration rules and the liberalisation of agricultural trade. Unless the government concedes in these areas, the very best it can hope for are deals not quite as good as those it had while in the EU.
Any agreement with the EU27, of course, will be different. The outcome will be essentially protectionist. Even if there are no tariffs or quotas, there will be new regulatory and bureaucratic hurdles to trade. Some businesses — those who at present struggle to compete with European rivals — may well benefit. Others — those embedded deep in continental supply chains — will lose. I wonder which will shout loudest?
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