Cheering for Trump?

Donald Trump’s conduct and temperament; his views and treatment of employees, women, Muslims, Latinos, and indeed anyone opposing him, ought to have ensured his electoral rejection, whatever his policies. So, boos all round. He was patently prepared to say anything to achieve office. But I believe he was telling it as it is on two huge policy issues.

He’s dead right about NATO

NATO has been “obsolete” – Trump’s word – from at least 1989, when the Berlin Wall fell. Russia couldn’t even retain an existing hold over Eastern European states by force; the notion that it might now invade them, let alone Western Europe, is fantasy. Charles de Gaulle was right in stating in February 1966 that the changed world order had “stripped NATO of its justification”, and took France out. The bogey-man is not coming. It sells Europe its gas, for heaven’s sake. The only plausible dangers to Europe and America are terrorist attacks, against which NATO is no deterrent.

What Eastern European states see as comfort, and politically desirable domestically, Russia sees as a menace. NATO plans to install an American missile ‘shield’ right on Russia’s borders. In response, Russia has announced its intent to deploy surface to air missiles in its enclave of Kaliningrad, now surrounded on three sides by NATO countries. Surprise, surprise, NATO has claimed this ‘threat’ as justification for its installation and existence.

The Treaty’s first Article says: “The Parties undertake, as set forth in the Charter of the United Nations, to settle any international dispute in which they may be involved by peaceful means in such a manner that international peace and security and justice are not endangered, and to refrain in their international relations from the threat or use of force in any manner inconsistent with the purposes of the United Nations.” Does NATO’s posture and use abide by this?

The International Institute for Strategic Studies estimates Russia’s current annual military spending at $66bn: a tenth of that of the USA, and barely more than the UK or France. NATO is actually an economic device for tying up Russian resources. Of course the UK military (and ex Defence ministers) holding senior posts in NATO have a vested interest in its continuance. Following Trump’s comments, no-one is going to believe the Treaty would secure American commitment to a war under his presidency were a European country to be attacked. It is a dead duck. The Western states of the EU (except notably the UK and Belgium, where NATO HQ is sited) would rather have a EU controlled integrated capacity, and are moving towards this: NATO will wither in tandem.

He’s dead right about the need to curtail Free Trade

What have Theresa May and John McDonnell got in common? They have both repeated the mantra that they wish to protect the UK against the evils of globalisation, and that they support ‘free trade’. To quote McDonnell1: “This has always been a trading nation and I believe the economic benefits of free trade are well known throughout the country.” {Cobblers – we are now a consuming nation that buys in, and the economic benefits are little known up North.} If, by the evils of globalisation they mean, like Trump, the loss of jobs and investment through international business siting or migrating them overseas, that practice is enabled by free trade: the ability to sell products without restriction or tariffs from the base of its choice.

It is an invitation to flood the world with goods that were once – or could be – domestically produced. (Germany and China exacerbate this by being locked into, or maintaining, an artificially low exchange rate.) America’s biggest export market by value is China, yet the amount is dwarfed by its trade imbalance with it: $336bn last year. Free trade can only mean more of the same. The consequence is not rape – Trump’s typically vituperative word – as the commerce is consensual, but rather something close to economic prostitution; to be followed by the sale of the cat house.

An exporting country may well spend its profits and surplus foreign currency in the importing country by buying assets. The UK government’s policy is to assemble a bunch of carrots to that end. But all too often this foreign direct investment is in brands (like Aquascutum, with closure of the UK clothing factory); not in new businesses, or those with export capability. In November, the Chancellor, accompanied by a Chinese vice-premier, proudly announced “a major opportunity to open up investment opportunities in the Northern Powerhouse.”1 What was taken up are property developments.

A stick, or measure, is needed to deter mercantilism: the uncontrolled export of goods. It has long been a racing certainty that America will perforce engage in a trade war on China this century. Trump has fired the starting gun. He announced that America will abandon the Trans-Pacific Partnership Free Trade treaty, set to be endorsed in Congress. Members – who include Canada, Mexico, Australia and China – accept it is dead in the water.

How might it be conducted? America might attempt in extremis to change China’s trading behaviour by an embargo, enforced by some sort of blockade run from the new bases that America has installed on islands in the South China seas under Obama’s watch. John Pilger’s documentary, ‘The Coming War on China’, shown this December on ITV, suggested as much. History shows that trade embargoes transmute into skirmishes and real war. But the sabre rattling is much more likely to end in tariffs.

The Transatlantic Trade and Investment Partnership deal with the US (of which we were the most enthusiastic EU promoter) is likewise likely to flounder, as America plays even harder ball. If we attempt a free-trade deal of our own (despite the fact that we have never had or needed a trade treaty with the US), I think our weakness will be perpetuated. It is a mistaken idea that we have stuff that US consumers will buy, but purely for reasons of existing minor tariffs or prohibitions, we can’t sell. That ‘stuff’ is likely to be principally services, opportunities for business conducted overseas without meaningful UK employment. What we will import is more service privatisation.

Free, or not so free Trade

But to step back. Some lines are drawn in the sand. Governments enact anti-dumping measures to try to stop the sale of goods at below cost. They impose a levy on them and their cost of shipping and insurance. For example, imports of bicycles from China to the EU suffer a tariff of this kind of 48.5%. It is a bit like saying it’s OK that we are getting trashed at cricket, providing you play fair. I say with Trump that we have to alter the game.

Rates of duty on goods coming from outside the EU are on the HMRC website. You would think that laptops, mobile phones, digital cameras and game consoles would attract duty, but, like books, they don’t. Currently the UK is in dispute with Apple over its fancy new smartwatch, which has a £49 detachable strap. The watch doesn’t attract duty. If the strap is not regarded as integral to the watch, it is an “other plastic” import subject to 6.5% duty: hardly a game-changer.

The alternative to Free Trade is not some blanket imposition of tariffs on all imports, or from all countries. It should take into account the possibility of retaliatory charges on exports. The Far East tiger economies, and Bismarck’s Germany, grew manufacturing through selective barriers to imports. That’s impossible for trade between the Continental European countries, with their umpteen common borders, and the Common Market was born of that, just as much as from idealism.

A bit of UK history

In the 19th century, huge battles were fought over protectionism. Come 1903, imports of manufactures were growing and Joseph Chamberlain left the Tory Government to campaign for it under the banner of Tariff Reform. He suggested that income from tariffs could provide the means to make social provision. The spectre of higher food prices (despite his proposal to exclude Canadian grain and other Empire products from any levy), City of London opposition, and the consequent Tory party split, made it a lost cause. Now, the UK is woefully weak in exportable goods, other than certain luxury products, pharmaceuticals, armaments and financial services. Finding products to kit out Trade Fairs has been an embarrassment. What is to be done, other than turn ourselves into even more of a tourist theme park?

The case for manufacturing

The alternative for the UK, like the US, is to substitute home based manufacturing (in the broadest sense); currently rendered a non-starter by low or tariff-free imports. Manufacturing enshrines a measure of permanency in a locality, jobs, and export potential, in a way that siting the HQ of a multinational, or warehousing, does not. Trump is right that it is essential to revitalising communities in America – and across Europe, and, for that matter, Africa. The secondary jobs that come with it have a huge multiplier effect. There is also the issue of job satisfaction, individually and as a community. This is why all the economic projections, all the prognostications during the Referendum cut no ice. People take pride in home production, however much it is automated.

The problem for us, unlike America, is the relatively small size of the UK market to attract new ventures even with the help of state aid. (That this last is prohibited by the EU if ‘advantageous’ is a reason of itself to Brexit.)

There is a call for a ‘soft’ Brexit giving a ‘passport’ for products into Europe. My topic is Trump’s policies, not Brexit solutions, but imports from the EU, such as motor vehicles, will be something that the EU would wish to preserve. Why not insist that one or more new car-making plants, that are, to some degree, determinable by government shareholding, will be sited in the UK in exchange for tariff free importation of other vehicles. Why else would a European car manufacturer site here? Like Goldilocks, some negotiated porridge will go down cold; some will make people hot under the collar, and some will need to be sugared.

The immediate effect of tariffs is an increase in the cost of goods, or their domestically produced substitutes, and a fall in demand, because the population can’t afford them, or the goods in question are no longer there, with a fall in that virility symbol, GDP, and a consequent contraction in the incomes of traders and their supply chain. Hence the frenzied urgings of the CBI to maximise free trade: their primary concern is throughput. But simply increasing sales does not commensurately increase jobs. In any event, demand is not there in our saturated home market, because proper jobs, and the income of the many, have not grown.

The hope is that the increases in cost are matched in time by the created spending power of the businesses and communities that produce the replacements, and of the government that collects the tariffs

Following the US mortgage crash in 2008 and the Greek crisis, countries around the world went down the protectionist route. The days of ‘laissez faire’ are perforce coming to an end. Reciprocity is in. I closed my talk with a case history: Argentina (a much smaller market than the UK). Importers’ share of its mobile-phone market was 96% in 2009. By stalling imports, Argentina persuaded Blackberry’s manufacturer to set up a plant there to largely replace this. Manufacturers who couldn’t relocate took the message that their products could only get through customs if they invested in Argentina to generate an equivalent value in other, exportable, products: the wine you buy in supermarkets now is in part a result. The head of the business school in Buenos Aires summed matters up by saying that the interventions were a deterrent: “It’s a general message for everyone who wants to import that it will be expensive and complicated, and you’re better off producing here.”3 I’ll drink to that.