A Manifesto for Lord Mandelson- 9 (Conclusion)

Crisis
This outsize post calls for apologies, but events conspire… 

A transatlantic blow-up has shattered our series on trade relations with the new American administration. Or has it? The final section below reminds us of the context going back more than a century, together with precedents of similar turmoil passing off without permanent damage. 

Even so, right now everyone is spooked, as the US has unapologetically demonstrated the asymmetry of security relations highlighted in our post on defence. In Brussels on 13 February, US Defense Secretary Hegseth announced that Europe’s security is no longer an American priority. In Munich on 15 February, Vice President Vance warned that the EU foments its greatest threat from within. In Washington on 27 February, Trump and Vance sent President Zelensky packing, after mauling him on camera. In London that weekend, the Europeans patched up a proposal. One of its four pillars, continuing supply to Ukraine, was undercut within hours by Trump’s pause in military deliveries and a day later by his suspension of intelligence-sharing. 

In seven weeks, Trump and his attack dogs have done more to grab the attention of the Europeans than his predecessors managed in decades. Maybe these episodes of “move fast and break things” are shock-therapy advancing subtle strategy, including a just peace in Ukraine. Maybe not. Regardless, the Old World is hastening to rectify what now looks like a fools’ paradise extending over thirty years: immediately, to ramp up defence spend and shoehorn its way into a Ukrainian ceasefire; ultimately, to develop security independent of a US upon whom they now hesitate to rely. Alarmists are speculating that America slugs its military supplies with “kill switches” and is on the way to becoming a hostile power. This is dopey: the first is unnecessary, with the Pentagon having many other ways of pulling the plug; the second is panic attaching to the belated discovery of the continent’s self-inflicted defencelessness. Let us spell this out.

  • We (and our neighbours) have ⁠meagre local defence production. This would take one to five years to rectify, at the cost of slashing budgets elsewhere and pausing net zero. Buying off the shelf from the US would upgrade capacity promptly and satisfy Trump’s mercantilism but do nothing for self-reliance. Procuring systems needing least post-delivery Pentagon support, eg, airlift (see below), would square the circle. 

  • We have no out-of-area air cover, scant airlift, and scant over-the-horizon surveillance or comms. Airlift would take five to ten years to rectify as Airbus has no high-wing rear-loading airframe. Airborne surveillance could use existing airframes, so three to five years. So too air cover, satellite surveillance and comms. 

  • We have no independent joint command or procurement capacity. In principle, this is rectifiable immediately, given political will, at the cost of complicating NATO structures and possibly further undermining transatlantic relations.

  • Defending ourselves courts nuclear war with Russia. If the US takes its battlefield nukes off the table, European scope to deter or retaliate is restricted. British and French strategic weapons were deployed as a backstop (more accurately a tripwire) for US commitment. It would take three to five years to build out battlefield nuclear weapons and the UK would have to steel itself to unwinding its nuclear technology from the US.

Predicament
Should Trump be seen as a temporary aberration or an epochal Zeitenwende? To put it another way, can the UK wait him out? If erring on the side of caution, the argument runs that confidence is so undermined that a subsequent US administration will struggle to repair it. The reductio ad absurdum is that if eighty years of goodwill can be depleted so abruptly, why trust anyone? Cool heads call for the UK to tread nimbly to maintain credit with both the US and Europe; possibly also to revisit strategic balances, long believed to be settled, specifically

  • continued security commitments to our neighbours, our course since the Entente Cordiale of 1904; versus creating a citadel as Israel, Singapore or Switzerland, freeing us from military entanglements; and

  • continued adherence to the “international rule of law”, our course since WW2, as best-aligned with the interests of a prosperous medium-sized country with legacy global relationships; versus protecting our interests with hard power and piecemeal bilateral treaties, freeing us from international intrusions.

Let us wish luck to Starmer, straddling a careless America and a toothless Europe. In the domestic arena, these upheavals also oblige him to revisit other familiar balances, never capable of final settlement: aspirants vs incumbents, autarky vs efficiency, deregulation vs social protection, energy economy vs security vs (this more on the faddish side) zero emissions, fiscal benevolence vs sound money, and growth vs redistribution.

The headline should be that growth is now paramount, not so much for yesterday’s agenda - balancing the post ’08, post-Covid books; but for today’s - defending the realm. It is not clear that the penny has dropped. Britain’s marginally increased defence spend comes at the cheap cost of slashing aid; serious commitment calls for tougher choices. The bond markets had already pushed Reeves towards growth. She has offered warm words about airport expansion, rail links and datacentres, but these are not even starts, let alone completions. Turning from words to deeds, anti-growth bills on education, employment and renting are still going through Parliament; the government remains committed to a Climate Change Act reflecting attitudes now with Nineveh and Tyre. The welfare cuts expected in Reeves’ Spring statement will test Labour MPs’ tolerance of further reversals.

Updates
Earlier posts put off certain topics to this conclusion: one was the arrangements with the US for which it would be worth upsetting Europe and vice versa. The stakes have become so much higher that we can no longer do so. Would restated defence commitments from the US be reassuring? would freedom from tariffs be worth that much? Not really. On the other side, is there is anything the EU can offer to make up for alienating Trump? It’s not just the old stories of the trauma of Brexit, sovereignty, the ECJ, and so on; it’s more that at present we are all so close to defenceless without US support. So tread nimbly with both. 

The other such topic was the concessions to be sought for our strong cards in labour markets and energy. The current turmoil suggests a couple of approaches to (eg) the soft power of youth mobility. It can be bargained for corresponding arrangements with friendly countries to build up future goodwill. The usual suspects would be the US, for whatever succeeds the current disruption; our European neighbours, en bloc or nation by nation; and the Anglosphere. Other configurations embrace such friendly countries as Japan and (more daringly) Taiwan, or (if hopping that way) fellow citadels. Alternatively, youth schemes can be bargained for objectives in unrelated fields, eg, military (basing, training, other joint endeavours); or economic (markets or supply). These options are not exclusive; it is too soon to choose between them. As to energy, recent events argue for shifting away from the transactions ventilated in our original post, to a narrower programme of self-sufficiency and resilience. This calls for the rapid local introduction of Rolls Royce’s SMRs and the development of indigenous hydrocarbons including fracking. 

Despite recent upheavals, everyday relations continue. Those with Europe should follow, inter alia, Mario Draghi’s confirmation in the Financial Times of 14 February of the central premise of our introductory post: that the EU’s single market is illusory. His figures from the IMF are even more damning than ours. Summarising our subsequent posts, the US seems to offer more across the board. This would always have been a hard sell domestically, all the more so in the current climate. So, to revisit our selective approach.

Defence  The security upheavals since our post of 31 January are addressed above. This leaves reconfirmed US security guarantees as essential as ever, but now harder to credit. US joint-ventures involving fighters and B.Ae Systems now look rash, but Lord Mandelson should do what he can to flush the covers. Supporting our carrier fleet remains as urgent as ever. The dynamics of the Chagos deal have altered, making it arguable that we need more persuasive reasons to shell out £9bn for a US base. As to Europe, Starmer’s 3 February ask, “…military mobility and logistics…cooperation to prevent state threats…and sabotage…greater cooperation on missions and operations”, were transparently holding requests. They should be made more concrete with joint staffs and procurement, either permanent or programme-specific. More participants should be invited into the Tempest fighter programme. Nothing has changed on border control since our post called for a deal with France in exchange for fishing rights.

Piecemeal commercial  Since our post of 7 February, Trump spoke warmly about a trade deal after his meeting with Starmer on 26 February, but it is not clear how seriously to take this. Regardless, it is unlikely that the US will relax its position on taxes or extensive tariff-free trade. Lord Mandelson could do worse than pursuing the possibilities with AI and NHS datasets which we outlined. Starmer’s 3 February ask to the EU, “research and development…deepening industrial collaboration…” represented more holding requests and has been overtaken by events: wide-eyed partnership is not what it was five weeks ago. 

Labour markets  As stated above, since our post of 14 February, it makes sense to develop the youth mobility schemes which have such international currency for strategic concessions. 

Housing  No change since our post of 21 February. Starmer’s push on new towns is half-baked and ignores supply-side problems. The US has pertinent expertise, which Europe does not. Current policy for land-use deregulation is promising but needs to be beefed up.

Energy  Also as stated above, the turmoil since our post of 28 February makes it a priority to aim off international transactions for local resilience, pushing to install Rolls Royce’s nuclear technology and to frack domestically.

Public services  Here too, no change since our post last week. The US has expertise in healthcare technology, Europe in its financing, but there are no deals to be done without changes in public sentiment or policy, only likely if budgets get badly squeezed.

Other  We have touched on regularising the position of London’s capital markets with the EU to reduce the cost of their funds, made more likely by the increased European appetite for defence borrowings. We have argued for steering clear of the EU regulatory web and for caution about promises of reform. Otherwise, however, we would treat the EU with courtesy, neither labouring the current wrong-footedness of its members, nor being provoked by talk of the UK as a demandeur.

Context
In 1919, US President Wilson presided over the peace treaties which ended WW1 but kindled the discontents leading to its successor. He also promoted the League of Nations which he was unable to sell back home. Conventional wisdom had it that a stronger international body and American participation would keep the peace after 1945. In the event, the UN failed to offer more than a fig-leaf or a wrist-slap for great power aggression. Other flagship international processes, for example the COP and ICC, have largely become the weaknesses of fond Europeans, ignored or gamed elsewhere. During the Cold War, the “international rule of law” was slighted by the US to suit its book in Latin American and the Middle East; thereafter, it only prevailed, eg, in Bosnia and Kuwait, with American enforcement. The success of these last led to the overreach of the “forever wars” of Iraq and Afghanistan, where Trump is the standard-bearer of popular blowback.

Finally, some precedents of post-WW2 crises which ended up counting for less than their immediate shock. In 1956, America joined with the Soviet Union to vote against its NATO allies, Britain and France, in the UN Security Council. The US also collaborated with Saudi Arabia to cut off oil to its allies. These steps were part of Eisenhower’s campaign to force Britain and France to abandon their invasion of Egypt. He succeeded, the Prime Ministers of both countries fell, and each then went its own way. Britain threw in whole-heartedly with the US. The French ostensibly took a more independent line. They stagily kicked NATO out of its Paris HQ; built up a nuclear force de frappe, nominally independent but reliant on American components; and withdrew French forces from NATO, nonetheless shortly entering them sotto voce into operational agreements with the alliance and eventually altogether returning. 

In 1971, the Nixon “shoku” suspended the dollar’s convertibility to gold, forced the revaluation of the yen and paved the way for decades of bullying Japan into “managed trade”. The Japanese were horrified but adjusted, boosting their exports from quantity to quality, prospering further and maintaining amicable relations throughout.

In 1973, Australia and New Zealand felt profoundly betrayed when the UK abandoned its longstanding trading arrangements with them on joining the (then) EEC. It took the Antipodeans more than a decade to adjust and they have never forgotten what they took as the mother-country’s self-serving callousness. Even so, these days relations are warm: the ties which bind have prevailed.

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What’s wrong with economics — 3 (Prediction)