Post-Brexit Britain’s Trump problem goes much deeper than trade tariffs

Brexit is back in the news again. That is partly the aftermath of the budget, discussed in my previous post, which was followed by speeches at the Mansion House by Chancellor Rachel Reeves and the Governor of the Bank of England Andrew Bailey. The latter highlighted the economic damage of Brexit and called for a re-building of relations with the EU “while respecting the decision of the British people”.

It's true that, as economics commentator Simon Nixon observed, this marked a notable break with official Brexit omerta. Still, it was not exactly dynamite stuff. The economics are well-known and the political message was identical to the government’s own stated policy. Indeed, Reeves’ own Mansion House speech said the same thing. In that sense, Bailey’s comments showed the limitations of government policy in that, as he must know, closer relations with the EU will only marginally reduce the ongoing costs of Brexit. So, despite being accused by Matthew Lynn in The Spectator of “reopening the Brexit debate”, Bailey hardly did that, unless even the barest mention of Brexit is now to be described that way.

If his comments attracted attention, it was mainly because of the wider context of now intense discussion about what the coming Trump presidency is going to mean for post-Brexit Britain. In my previous post I suggested that ‘hot takes’ on this were not wise, and to an extent I think that is still the case. Apart from the fact that he isn’t yet in office, he is by any standards a capricious politician. What he may actually do when he comes back to power is highly unpredictable.

Trump’s psychodrama

I don’t mean, of course, that it isn’t already abundantly obvious that it is going to be dire. The choices he is already making for key appointments demonstrate he is going to oversee a depraved, intellectually and morally bankrupt, regime. About the only thing which may save us from the worst is that it may well also be too incompetent and too prone to infighting to deliver what it threatens.

However, within that broad picture, it remains to be seen exactly what he does in terms of the two issues most obviously of concern the UK: defence posture as regards NATO generally and Ukraine specifically, and a blanket hike in trade tariffs. I’ll discuss the latter shortly, and whilst I won’t discuss the former in this post there is a good analysis by Benjamin Martell of Edinburgh University in The New European, building on his and others’ report for the Independent Commission on UK-EU Relations earlier this year.

Beyond the difficulty of predicting what he will do, I think there is an undesirability in doing so. One of the ways in which narcissistic bullies like Trump exert power – and it’s the same in playgrounds, prisons, and some businesses as it is in politics – is precisely to generate a psychodrama of fearful uncertainty around themselves: ‘what will he do? What will we do if he does that? What will he do then if we do that?’

In this way, those around the narcissist become unwittingly complicit in his way of exercising power. It is very difficult to find a way of resisting that kind of power, but one possibility might be to stand back a little from the frenzy. To play it long and cool, rather than short and hot. Admittedly, that is not a luxury open to the heroic defenders of Ukraine, but it might be good advice to the UK. However, as a matter of fact, political actors and commentators here are currently engaged in trying to work out what Trump means. So the frenzy can’t be ignored.

Trump’s tariff threats

In the UK, and very directly connected with Brexit, much of that frenzy has been to do with trade. Specifically, if Trump does impose a blanket 10% or even 20% on imports to the US it would mean, at the upper end of that range, an estimated 0.8% fall in annual UK economic output. That it is not even worse is because the bulk of UK exports to the US are services (which do not attract tariffs) rather than goods. But, in the context of already anaemic growth forecasts, and the very urgent political and economic need for improved growth, that would be quite bad enough. That seems to be the baseline assumption in most commentary, but of course if it turned out to be 10%, or if the uplift was only applied to certain sectors (and depending what these were) the impact would be less. But it still wouldn’t be good.

If any of these scenarios happens, then one response, and it may well be the EU’s response, could be to impose retaliatory tariffs on imports from the US. A trade war, in other words. The UK could do that on its own account, but it is far too small to be able to win a trade war with the US. So this exposes the weakness of post-Brexit Britain. For many of those opposed to Brexit, it re-presents a choice between the EU and the US, to which the answer must be the EU. According to Brexiters, though, the opposite is true (£), and being outside the EU means that the UK could strike a deal with the US on its own account.

Others, by no means confined to Brexiters, see a less stark choice. Peter Mandelson, tipped as the possible next Ambassador to the US, sees a third way, with the unfortunately worded suggestion (£) that the UK could “have its cake and eat it”. It’s a possibility endorsed (£) by the generally acute Financial Times commentator Robert Shrimsley. Similarly, Andrew Haldane, the former Chief Economist at the Bank of England, believes a deal is possible without prejudicing relations with the EU. One reason for making such a claim is that not only are most UK exports to the US made up of services, but it is services trade where the UK has a trade surplus. Given that Trump’s tariffs are aimed at those countries with surpluses in goods trade, the UK isn’t so much his target as potential collateral damage.

What does a ‘deal’ mean?

However, the discussion of all this has already become mired in confusion. That is principally because it has conflated two potentially very different things. One is the old Brexiter dream of a UK-US Free Trade Agreement (FTA), meaning, at its most basic, an across-the-board removal or reduction of all or most tariffs, but potentially including the removal of some non-tariff barriers to trade. The other is a specific deal to be exempted from the blanket imposition of Trump’s new tariffs. An FTA would improve the current terms of trade. An ‘exemption deal’ would simply return terms of trade to the status quo ante.

They are also different in that FTAs typically take a long time to negotiate, whereas an exemption deal, at least in principle, need not. And that reflects the fact that the things required of the UK for an FTA would be likely to involve substantial concessions on regulatory issues (‘chlorinated chicken’ being the symbolic one), especially as regards agriculture and pharmaceuticals. What would be needed for an exemption deal is less easy to predict, but could be things like voluntary export quotas, restrictions on Chinese imports, or agreement to import large quantities of US military equipment – but not, necessarily, regulatory concessions. [1]

These two scenarios therefore have different implications for the other side of the coin, UK-EU relations. An FTA, to the extent it entailed regulatory change, would move the UK further from the EU regulatory orbit. That would derail the current direction of Labour’s ‘reset’ policy, which is primarily based on continuing alignment with the EU. It would certainly derail the centrepiece of that policy, a UK-EU SPS deal (which would entail regulatory alignment on agricultural standards, especially). It would also have implications for Northern Ireland, which would remain bound by EU goods regulations, and thus would ‘thicken’ the Irish Sea Border. A more limited exemption deal might well avoid these things, but would certainly do political damage to the reset in terms of trust, assuming that it left the EU fighting a trade war with the US which the UK had managed to slide out of.

A trade deal with Trump?

Some Brexiters would undoubtedly argue that the distinction I’ve drawn is irrelevant, in that an FTA would also be an exemption deal (even though an exemption deal wouldn’t be an FTA). That’s true, but it doesn’t affect the point that an FTA would take longer to agree, and in the meantime there would be no exemption from the blanket new tariffs. Nor does it recognize the profound political difficulties any UK government would face if it met likely US demands on regulations.

But there is a more fundamental issue. Brexiters, both in the Tory and Reform parties, are now talking as if a UK-US FTA was there for the taking under Trump’s first presidency, and will now be available again. Kemi Badenoch is even claiming (£) that there is an “oven ready agreement negotiated by the last Tory government”. This is nonsense. There was no such agreement [2]. In fact, Trump blew hot and cold about a deal first time round. That’s actually a specific example of my earlier point about how narcissistic bullies use uncertainty to exert power. And even if he ever did offer such a deal, it would be on one-sided terms (that would probably be true under any US administration, but certainly under Trump’s ‘winner takes all’ version of deal-making).

In any case, this latest upsurge of talk about trade talks is exhibiting some of the same deficiencies as the earlier version. One concerns the relative importance to the UK of trade with the US and the EU. Brexiters, including Badenoch, are already wheeling out the misleading claim that the US is the UK’s largest trade partner. That’s misleading because it treats each member of the EU as a separate trade partner. They aren’t, to the extent that all are part of a single market and customs union. Brexiters really can’t have it both ways, saying that EU membership prevented the UK from being independent, especially in trade policy, but then talking as if each EU member is a separate trading entity. Secondly, it resurrects the misleading idea that a UK-US FTA would be much of an economic prize anyway. The previous government’s figures suggest it would provide an additional 0.07% to 0.16% per annum to GDP over 15 years.

Nevertheless, what we are going to see, and are already beginning to see, is Brexiters pretending that there is an easy, perfect solution to the Trump tariffs, but one that the Labour government is refusing to take because it is anti-Trump and pro-EU. We will see, as is also already beginning, Nigel Farage claiming with smirking self-importance that he has his own special relationship with Trump, giving him a unique influence and insight, just as he did first time round. Along with that will be noises from Trump supporters, and again they are already beginning, suggesting a deal is possible if only the UK abandons ‘EU socialism’. Trump will undoubtedly throw fuel on to that fire (‘I offered them a great deal, it was a beautiful deal, but they didn’t want it. I d’know why, I hear they preferred the EU, I d’know, but it was a beautiful deal’).

Beneath this, there is a still more fundamental issue. Trade policy is never wholly about economics, or economic rationality. But this is unusually so for Trump. If it wasn’t he would hardly even be contemplating the blanket tariff, which will increase prices in the US (though, despite what some think, that probably won’t bother his supporters). Instead, trade policy for Trump is about beating his enemies, in this context meaning the EU and China (which may face 60% tariffs). So there’s no point in thumbing through Ricardian theory on comparative advantage to try to understand Trump’s policy. But the corollary is that there’s no point in trying to frame responses in these terms.

In concrete terms, this means that the UK government should not weigh its (distinctly limited) options simply in terms of economic effects. An exemption deal might reduce the immediate economic damage, but its longer-term costs to the UK, both economic and geo-political, would be considerable in terms of the EU and, very possibly, China. The potential Chinese dimension is worth stressing, because at issue for the UK is not a just a two-way tug between the EU and the US, but being stuck between all three blocs. That was brought into focus by Keir Starmer’s attempts this week to improve relations with China, which might well be jeopardized by any form of deal with the US. To put all this another way, the only deals Trump does are those that favour him.

The cleavage in 21st century politics

This brings us to the final, and deepest, level of what is at stake here, and it is far more important than tariffs on this or that, or small percentages of GDP. It is that what Trump represents, as Brexit does, is what I’ve elsewhere discussed as ‘anti-ruleism’. In the most basic way, his anticipated blanket tariff policy makes a mockery of WTO rules. But his entire approach to politics is one which rejects the rule of law, scientific rationality, and, ultimately, the concept of ‘rational-legal authority’. I try to avoid social science jargon on this blog, but I think it may be useful here.

The sociologist Max Weber developed the idea that modern, industrial societies were increasingly characterised by systemic, codified rules and laws, objectively formulated and applied. So we obey X because s/he is the legitimate holder of the office (of President, or CEO, or whatever), not because of the person holding it. Weber contrasted that with authority that was ‘traditional’ (e.g. monarchy, church) or ‘charismatic’ (derived from the persona of the leader).

Trump fairly obviously seeks to elevate charisma over rules, but more to the point he embodies a hostility to ‘rules’ as a concept of social organization and politics. In this, he shares a common ideology with the ‘disruptor’ tech bosses, like Elon Musk, who now support him, and, in the UK, with their fanboy Dominic Cummings (£). He also shares it with Vladimir Putin, who relies on a peculiar admixture of charismatic and traditional authority, fused with nationalism, and is equally disdainful of the rules-based international order.

It is also shared by Boris Johnson, exhibited by the way that he (for perhaps idiosyncratic reasons) and the Brexit Jacobins (for reasons of fanaticism) believed it was acceptable to dispose of all conventions and institutions, including parliament itself, in order to ‘get Brexit done’. It is shared by Liz Truss, who still insists those institutions caused her downfall. Emblematic of this is the hostility of both Trump and the Brexiters to bureaucracy and, especially, the civil service, which, not coincidentally, was emblematic, for Weber, of rational-legal authority. That hostility is shared by Kemi Badenoch, in her aggressive diatribes against ‘the bureaucratic class’. Such anti-ruleism is obviously connected with populism, but it isn’t identical to it (there’s a book to be written there). The disjuncture is what did for Boris Johnson, when his disdain for the Covid rules fell foul of the populist idea that ‘rules should apply to all of us’. 

There are many different ways of understanding these developments. One way might be to see them in terms of the latest phase in the unwinding of the politics of the Cold War (that would need another book). Another, even more epochal, would be to see them as a kind of Counter-Enlightenment, in which the eighteenth-century battles over rationality are being re-fought but in the other direction (that’s a third book). Of course, the Trump presidency will not last forever. But there is a sense that deep and profound changes are now established in the US and elsewhere. And why not? Despite the brief moment when some claimed ‘the end of history’, history never ends.

However they are framed, the key point is that these developments are about far more than international trade. That is not surprising, because Brexit itself was about far more than trade with the EU; more, even, than membership of the EU. Needless to say, these are not the terms in which most people are framing the current situation, although Rafael Behr of the Guardian comes close to doing so. If it were framed that way then, indeed, the whole question of Brexit would be re-litigated. It is clear that the government have no intention of doing that.

Will Starmer’s government rise to the challenge?

Nevertheless, in terms of the division I have presented here, Keir Starmer is very much on one side, being almost the epitome of rational-legal authority or, so to speak, ‘ruleism’. That is something to be grateful for, yet even framed in the narrower terms of trade and tariffs his government’s response so far is rather wishy-washy. Reeves has spoken of seeking to do a deal with the US “whether that's through a free trade agreement or through further improvements in our trade and investment flows”. But in the same interview she pledged that “we’re not going to allow British farmers to be undercut by different rules and regulations”, effectively ruling out an FTA. As for some exemption deal on new tariffs, she just says that “we'll make the case for free and open trade”. What does that mean in practice? Who knows.

Perhaps, when Trump’s intentions become clearer then so will those of the British government. But my hunch is that they won’t. I don’t think that the government is, as I put it earlier, playing it long and cool. I think it will simply try to muddle through, dodging or fudging the choices in the hope that they become irrelevant, if only through the decisions made by other countries. Arguably, in a situation in which the UK has so little leverage and so few good choices available, that has a certain pragmatism. But as a response to the bigger framing of those choices gestured towards in this post it is wholly inadequate.

Why are Labour in this situation? In some ways it is because, faced with Trump, any British government, like the governments of many other countries, has an almost impossible problem. But, just as, for Britain, Brexit adds to all the economic problems that other countries face, so too does it add to the Trump problem. For this government, in particular, that is compounded by its commitment to a Brexit policy which it does not believe in but is unwilling, and perhaps unable, to repudiate.

 

Notes

[1] This is my amateurish take on the question. For more detailed analysis (though I think it is pretty much compatible with mine) from trade experts, see Sam Lowe’s Substack newsletter, David Henig on the UK Trade Policy Observatory blog, and Dmitry Grozoubinski’s guest post on Ian Dunt’s Substack newsletter.

[2] It may be that Badenoch was referring to the previous government’s statement of the case for such an agreement (2020) Even if so, that was, emphatically, not an agreement with the US, still less one which is now ‘oven ready’ to be signed with Trump.