After the Rose Garden - Introduction
Trump is upending European security and global trade, also spooking public and private sector players with conduct seen at best as short-sighted, at worst as arbitrary and unpredictable. Europe and China are moving from gaming a nominally free-trade regime to unapologetic mercantilism. Smaller countries are confounded. Multinationals are war-gaming altered configurations to split ownership of US and non-US interests; create “supply chain islands” derisking reliance on Chinese supply and US reshoring; and generally, reduce exposure to US jurisdiction.
The UK is at risk of being marginalised between trading blocs. Can Starmer turn a minus to a plus, assuming liberal leadership by intermediating between them? This would involve:
Mediating between Europe and (rich, trading, non-US) rest of the world (ROW), essentially the CPTPP (Pacific Partnership) plus Canada, which at present is feeling even more bereft than we are;
Assembling a “coalition of the willing” (COW), embracing civil elements, that is the rule of law, reliability and trade partnerships; plus military elements, that is pushing our defence industry, bases, intelligence and nuclear capacity;
Deepening and internationalising London’s capital markets;
Reinforcing the UK’s status as a preferred jurisdiction for capital issues and commercial dispute-resolution; and
Recasting our immigration regime to attract a US brain-drain and generally for exclusively economic objectives.
Britain isn't in this position just because of Trump. Save for a couple of years under Lawson, the country has had a grim fiscal position since WW1; the UK has yet to realise much benefit from Brexit; and more broadly the rise of China has changed the face of the global economic system. This means that Trump’s actions are better seen as a catalyst rather than the sole cause of change. They leave these options before us:
Do nothing: allow the dust to settle or wait Trump out.
For. Assumes the moral high ground, avoids false positions and making bad worse. Trump may reverse himself or be frustrated: campaigning for the mid-terms starts in less than seventeen months, with falling stocks signalling a recession which will trim his sails.
Against. Supine and irresponsible. Trump has been committed to tariffs for decades; those around him think they will bring down an overvalued dollar. If Treasury yields resume their fall, they will ease US fiscal pressures and improve the chances of MAGA sticking around for twelve years. Doing nothing cuts us off from joint action.
If opting to do something, the alternatives are:
Liberal leadership: act as intermediary between Europe and (rich, trading, non-US) ROW.
For. Assumes the moral high ground. Nowhere else is better qualified. Taking this course may make it easier for the EU to respond to the seriousness of the position by getting off the high horse of its acquis. It also affords the benefits of free-ish trade within the bloc and something of a leadership role.
Against. It is not clear the world is still in a liberal mood; Britain’s links are not what once they were; the EU will be slow to revisit its intrinsic mercantilism to accommodate incomers; and it is not clear that parties so divergent could agree on external tariffs. Then again, the momentum for joint retaliatory action risks participation in an outright trade war.Singapore on Thames.
For. Assumes the moral high ground. Keeps the cost of imports down, flexible in the face of regulatory and technical uncertainty and offers a haven for capital flight and brain-drain.
Against. We have 11x Singapore’s inhabitants; a populace fragmented by class, region and imperfectly assimilated immigration, with priorities distorted by a century of state overreach; plus a slew of legacy manufacturing, with high tech and services reliant on continental, transatlantic or global links.Align with an existing or emergent trading or security bloc, without seeking leadership or intermediary role
specific options are explored below.
For. The default option. It looks like the way the world is headed.
Against. Not every trade bloc is congruent with a security bloc (see below). If involving a common external tariff, this course commits us to unalloyed trade war.
If opting for (4) blocs, the alternatives are:
Anglophone
For. Comfy old sweater, ie, familiarity.
Against. It is not clear that this is on offer. It involves geographically diffuse and small markets and has little to do with local security.Citadels (Israel, Singapore, South Korea, Switzerland, Taiwan)
For. This is congruent with security and the UK defence industry offers a leadership role. It sits well with Singapore on Thames.
Against. This course involves geographically fragmented and small markets, making it unclear how to marshal diverse trading policies. Our defence industry is five to ten years from self-sufficiency.CPTPP (Pacific Partnership)
For. These are the most vital economies in the world.
Against. They are, however, remote and fragmented, also introducing the ambiguous figure of China. They have little to do with local security.Europe
For. This has to be seen as the default alternative as local and most congruent with our immediate security. The UK’s defence industry helps.
Against. This course reopens Brexit wounds and exposes the UK to the all too familiar economic, political and security weaknesses of the EU set-up.The US itself
For. This offers the largest market and the most comprehensive security guarantees.
Against. It is not clear that this course is on offer or could be taken at face value given the current administration’s appetite to disrupt. It would also be a tough domestic sell.
It is impossible to set a priority between a security and a trading bloc. In an ideal world, the two should be consistent but they need not be absolutely congruent. For example, for fifty years we threw in economically with the EU but took security guarantees from the US; over the last thirty years Australia has come to trade energetically with China but remains aligned militarily with America.
The Adam Smith Institute is devoted to free markets, making the alternatives we propose to explore either “liberal leadership” with a view to restraining retaliatory impulses, or “Singapore on Thames”. Although we see inaction as irresponsible, we would not rush to premature positions. We will elaborate our approach to UK policy in the following posts, as follows:
Rule of law and reliability of decision making - 18 April
Growth and investment - 25 April
Fiscal balance - 2 May
Capital markets - 9 May
Foreign policy - 16 May
Defence - 23 May
Conclusion - 30 May
Although the Adam Smith Institute is not a foreign policy or defence think tank, we propose briefly to trespass into these areas. In addition, the current turmoil raises the risk that we get caught out by events. That is no reason for silence, but it calls for the tolerance of our readers if your author follows Keynes and changes his opinions if the evidence changes.
Miles Saltiel