There was a time when, doing this job, you could not get away from trade deals. Postwar trade liberalisation, which Donald Trump has been doing his best to reverse, meant a series of often protracted negotiations under the auspices of Gatt (the General Agreement on Tariffs and Trade) and its successor, the World Trade Organisation (WTO).
From 1947 to 1994 there were eight Gatt rounds, named after where they were launched, including Geneva, Tokyo, Uruguay, Annecy in France, and even Torquay.
Multilateral trade liberalisation has, however, come to a stop in the 21st century. The WTO’s Doha Round, or Doha development agenda, was launched in 2001 and has yet to conclude. It is a bit like that court case in Charles Dickens’s Bleak House. Trade correspondents have grown old and retired waiting for something to happen.
In place of these rounds have come bilateral trade deals, which are now firmly back in the news. The story of UK trade policy, and indeed of much of the economy, for the past nine years has been one of trying to fill a Brexit-shaped hole.
After the Brexit vote in 2016, closely followed by the election of Donald Trump, negotiating UK-specific trade deals became a thing. Although we had a Department of Trade and Industry (DTI) during this country’s near half-century of EEC and EU membership, trade negotiations were handled by Brussels.
Having forgotten how to do such negotiations, we did not get a great deal with the EU on leaving, or with Australia and New Zealand. George Eustice, the former Tory environment secretary, said on these that the UK “gave away far too much for far too little in return”.
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Successive prime ministers had to be nice to Trump during his first term in the hope of a US-UK trade deal. But flattery got them nowhere, the deal foundering on chlorine-washed chicken and hormone-treated beef.
Another prime minister, Sir Keir Starmer, has had to be nice to Trump again, perhaps through gritted teeth, in search of a different kind of deal — the one announced on Thursday. The previous hope was lower trade barriers. The agenda for this one was all about stopping them from going up too much.
There is an economic benefit from that, as well as political one. Starmer was praised by Trump as the prime minister who finally secured a US-UK deal. Nobody would say this is a great trade agreement, which leaves a 10 per cent baseline tariff in place — but, as noted here last month, the government had no option but to secure a reduction in punitive tariffs on cars, steel and aluminium. The UK has had to make more concessions on tariff levels than America has, which may have been inevitable.
“Industry will welcome this announcement, which is a recognition that the government was right not to over-react [but instead to] pursue a mature, calm and pragmatic approach,” said Stephen Phipson, chief executive of Make UK, the manufacturers’ organisation.
If the US-UK deal is a damage-limitation exercise, it is good also to celebrate a proper and potentially very valuable trade deal, that between the UK and India, announced a few days ago. As always, some found supposed bad news amid the good.
Within minutes of the deal being announced, the internet was awash with nonsense about every Indian worker in Britain being exempt from national insurance (NI). The very limited double contributions convention (DCC) in the deal, final details of which must be negotiated, does no such thing.
Employees of Indian businesses temporarily relocated to the UK will continue to have their social security contributions paid for at home, which is where their entitlements will accrue. They would not be eligible for the state pension or other benefits if they paid NI in the UK.
The same will happen for employees of UK firms relocated temporarily to subsidiaries in India. Permanent employees from India will be subject to NI, and even temporary ones will have to pay the immigration health surcharge — £1,035 a year. The UK has similar arrangements with the EU, Switzerland, Norway, Canada, Japan, Chile and South Korea.
I would have expected Reform UK to get hold of the wrong end of the stick on this, with foreigners involved, but would have expected better of the Tory leadership, which joined in with the attacks and made the government look like the grown-ups in the room. The depressing thing is that once misinformation takes hold, particularly in the open sewer that is X, it is hard to stop it.
Leaving the nonsense aside, the government is to be congratulated on the deal. Not just my words but those of the CBI, the Institute of Directors and the British Chambers of Commerce, which described it as a “huge boost” for both economies and “a welcome lift for our exporters”.
These are also the sentiments of Conservative peer Lord (Daniel) Hannan, who said the Tories should take pride in the preparatory work they did for the deal, even if Labour did the final negotiations and carried it over the line.
The Indian economy, the fifth-largest in the world in GDP (gross domestic product) terms, a tenth larger than the UK, has enormous potential. Adjusted for different price levels in what economists describe as purchasing power parity (PPP), India is the third-largest economy in the world, behind only China and America.
In 50 years, according to projections from the investment bank Goldman Sachs, India will move just ahead of America in GDP terms and be only slightly behind China. It has the advantage of a young population — two thirds under the age of 35 — and thus a growing workforce.
The trade deal with India will bring immediate benefits for UK producers ranging from advanced manufacturing to Scotch whisky, and for a wide range of service sectors including business and some professional services, and construction services.
More important, it gives the UK a chance to catch up after years in which, despite or perhaps because of historic links, trade with India has underperformed. India is only the UK’s 12th-largest export market and the UK has only a 2.1 per cent share of India’s imports, even though more than 9,000 businesses export there. There is clearly scope for all these figures to be improved upon.
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Building on the announcements of recent days will take time, and in the meantime there is other work to be done. The best way to fill the post-Brexit hole is to improve trade relations with the EU. The forthcoming UK-EU summit on May 19 is the next opportunity to do that, and it looks as if Labour has a fair wind to do it.
Polling by YouGov for pro-EU campaign group Best for Britain shows that, on balance, people think the government is being too cautious about moving towards closer relations with the EU, and that closer trade relations would boost economic growth. There is little overall support for the return of freedom of movement, but good backing for a youth mobility scheme for the under-30s.
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Britain’s exporters need all the help they can get from trade deals. Exports of goods and services, adjusted for inflation, have only just crept above pre-pandemic levels more than five years ago, driven by services, with exports of goods a dramatic 17.5 per cent down.
The more deals, the better.
PS
In a world in which there are too many surprises, it was good that the Bank of England’s monetary policy committee (MPC) cut official interest rates by the expected quarter-point to 4.25 per cent. Five of the nine MPC members voted for it, the other four balancing out between two who wanted a half-point reduction and two who favoured leaving the rate at 4.5 per cent. We can therefore say that seven MPC members wanted to cut rates but two, including the Bank’s chief economist Huw Pill, did not.
The Bank made its decision and prepared its forecasts before the formal announcement of the US-UK trade deal, which it welcomed, but uncertainty generated by America’s tariffs has not gone away.
Interestingly, it sees a two-way effect on inflation. To the extent that weaker world trade growth leads to lower growth in Britain and reduces the price of some imports diverted from America — for example, from China — inflation will be lower. But disruption to global supply chains — which is happening, an echo of what unfolded during Covid — will push in the opposite direction.
That said, the Bank thinks that, after a temporary rise, inflation will fall back towards the 2 per cent target, driven by lower service-sector inflation and the opening up of some spare capacity, or “slack”, in the economy.
Interest rates should thus have further to fall — maybe not as much as some in the markets expect, but to about 3.5 per cent by early next year.