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This Week in Brexit: Trump Promises a Trade Deal
On the sidelines of the G20 Hamburg summit, U.S. President Trump found time to meet with UK Prime Minister May and to offer welcome words that the United States will sign a bilateral trade deal with the UK as soon as Brexit is complete.
It’s very good news for the UK and also for PM Theresa May (who has had a rough time in domestic politics of late) and it was obvious that the U.S. president went out of his way to assure Ms. May that a reciprocal trade agreement — one that works for both America and for Britain — is one of his administration priorities.
So much of the UK’s post-Brexit success will hinge on bilateral trade accords because no matter how good the final Brexit agreement, there will be some amount of economic adjustment for Britain in the months following Brexit. A quick trade agreement with the United States will not only ease the Brexit transition, but also improve the UK (and America’s) economy indefinitely.
It was a classy thing for Mr. Trump to do for Theresa May knowing that her domestic political fortunes have taken a hit. Let’s hope the Prime Minister is able to return the favour at some point during the Trump administration. That sort of respect makes for strong allies.
During WWI, but especially during WWII the relationship between America and Britain was raised to a very high level by Prime Minister Winston Churchill and President Harry S. Truman, and in the postwar era during a time of unprecedented economic growth, President Ike Eisenhower continued the wise course set by his predecessor.
However, it could’ve so easily gone the other way if the leaders hadn’t gotten along.
Both sides would’ve missed geopolitical opportunities of huge importance such as the formation of NATO, the establishment of the Nuremberg trials and the creation of other institutions and agreements such as Bretton Woods and the IMF. Without the ambition of the UK and the power of the United States those things simply wouldn’t have occurred.
Millions of Americans and Britons prospered over the past 72 years because their postwar political leaders *didn’t drop the ball* and made a conscious decision to *make the best of the postwar relationship* for their respective people.
What Kind of Free Trade Agreement Should Prime Minister May and President Trump pursue?
Present-day Prime Minister of Canada Justin Trudeau was still in school when Canada first approached the European Union to ask about a bilateral trade deal, and that many years later it still hasn’t come into effect. (It’s about to, they say)
It will have taken eight years to hammer out and begin to abide by, the Comprehensive Economic and Trade Agreement (CETA) which arrives so late in the game and market conditions do change over time (remember way back to the 2008/09 financial crisis when the CETA agreement was first floated?) that some of the hard-won negotiating points are no longer relevant and may never be finalized.
Canada, EU to provisionally apply CETA in September (CBC)
I’m sure it’s a fine agreement and congratulations are due. However, with America and Britain at the controls of a mutually beneficial trade agreement between two friendly Anglophone nations, it should take less than a year from first discussion to signed agreement.
Though we don’t know what shape an Anglo-American trade agreement might look like from our vantage point in July of 2017, probably the best idea would be for both sides to embrace reciprocity and fair dealing in all trade matters as a way to enhance both economies, and as a way to later attract other Anglophone nations such as Canada, Australia and New Zealand to sign on to such an agreement.
Hitting the Right Note with Commonwealth of Nations member India
What a great thing it would be if all Commonwealth nations eventually agreed to sign on to a U.S. / UK trade agreement. Commonwealth of Nations member India has 1.5 billion consumers alone!
Both America and Britain could add 5% to their respective GDP just on the improved trade flows of doing business in the booming Indian economy.
“Although India’s rapid population growth is part of what accounts for the forecasted jump […] that is only part of the story. Drastic improvement in terms of per-person productivity due to capital investments and better technology will play an even more important role.
“PwC predicts that India’s economy will grow by about 4.9% per year from 2016 to 2050, with only 0.7% of that growth caused by population growth.
“India’s economy is currently the third-largest in the world, and is expanding at an estimated annual growth rate of 7.1% for the 2016-17 financial year. — India’s economy is forecast to surpass that of the US by 2040 (Quartz)
Both America and Britain just need to hit the right note with India — a respectful note — in order to profit from the massive growth that is available in that burgeoning country.
Working out an Anglo-American trade agreement with a view to adding all Commonwealth member nations within 24 months, guarantees that other powerful trade blocs don’t beat the Anglo-American alliance to supply the rocketing Indian economy with much-needed goods and services.
Projected growth for selected countries – As measured by Purchasing Power Parity (PPP)
Projected GDP growth UK and other countries 2016-2050. Image courtesy of Quartz.com
It’s so obvious but still worth repeating; ‘Hitch your wagon to the fastest horses if you want to place well in the race.’
Britain has the Commonwealth of Nations connections, Britain needs a trade agreement with NATO ally America and with Commonwealth partner India, and the United States wants to increase mutually beneficial trade with Britain and its 2-billion-strong Commonwealth partners.
In all of human history, rarely has such a synergistic match-up suddenly appeared where different but extremely valuable benefits are available to all three parties.
Just as nobody predicted the massive Japanese economic boom which began to form the day after WWII ended, an Anglo-American trade agreement, followed by a Commonwealth trade agreement (before other trade blocs grab the low-hanging fruit!) could match or exceed the massive performance statistics of the postwar Japanese economy.
Dear United States and Commonwealth of Nations, Let’s not miss this rather obvious ‘Win-Win-Win’ opportunity!
Free Trade or Protectionism for a Strong UK Economy?
by John Brian Shannon | January 17, 2017
Prime Minister Theresa May says that Britain must be a free trading nation to boost the UK economy and to better serve the aspirations of millions of Britons.
And Britain’s leader is correct, as history has proven that free trading nations outperform non-free-trading nations. From the seafaring Phoenicians of classical antiquity to the former British colony that became a superpower called the United States of America; Free trade and hard work have built our shared civilization, and any country that withdrew from free trade or liberalized trade agreements, consequently declined.
READ: Between Free Trade and Protectionism: Strategic Trade Policy and a Theory of Corporate Trade Demands by Helen V. Milner and David B. Yoffie | Published by MIT Press
That’s not to say that other economic practices don’t have merit, because they do. However, a group of non-free-trade nations will always be surpassed by a comparable group of free trade nations — due to the symbiotic nature of free trading relationships which produce small but measurable amounts of synergy that accumulate over time.
It’s the easier access to raw materials, the lower labour costs, and the ability to access larger export markets that make free trade work so well, but the ‘icing on the cake’ is the synergy produced by the symbiotic relationships which aggregate and thereby increase corporate profits and investor dividends that are often reinvested in the growing corporation. Over time, all this synergistic activity results in far greater outcomes than otherwise would’ve been the case.
The British Empire in all it’s glory was built on free trade with many partners, but in 2017 it’s even more important for Britain to be a free trading nation.
A perceived problem occurs when vast disparities are present, such as when one nation is blessed with abundant raw resources allowing it to basically dig money out of the ground which eventually accumulates into billions or even trillions of dollars, while another country in the same trading bloc may have few natural resources.
As long as all partners within the trading bloc have equal access to those raw resources, such problems are likely to be nothing more than minor jealousies.
Countries like the United States, Canada, Norway, Saudi Arabia and the United Arab Emirates have vast petroleum reserves, and importantly, good economic stewardship — which allowed them both rapid growth for the economy and a high standard of living for their citizens. It’s telling to note they are free trading nations — while other countries blessed with large petroleum reserves but restrictive international trading arrangements, haven’t prospered. Venezuela (the country with the world’s largest proved oil reserves) along with Libya and Nigeria, have poorer development due to their historically somewhat less than free trade practices. For economists, those nations serve as a warning to politicians considering the adoption of less liberal trade policies or outright protectionism.
Such disparities between nations, unless handled carefully, can result in explosive economic and political consequences.
READ: What does Free Trade mean? | Investopedia
Globalization: Lower-priced goods, but fewer jobs
It’s easy for some to forget that free trade and globalization are two different things. Free trade relates to the removal of tariffs, or at least the standardization of low tariff rates between member nations of the same trading bloc, while globalization refers to a highly interconnected political and economic world of which trade of any kind, whether free or not, is merely part of a large picture.
Those who feel left behind by globalization (and there are millions) tend to blame free trade, when in fact it was free trade that created a booming global economy from 1982 through 2007 (and a somewhat less booming economy) from 2012 through 2016.
Led by global elites, the rush to create high growth and high GDP meant that quality of life fell steeply for millions of Westerners for the first time since WWII due to the offshoring of Western jobs to countries with lower labour costs and non-existent environmental regulations.
Britain must ensure that globalization and free trade work for every Commonwealth citizen.
READ: You Can’t Feed a Family With G.D.P. | New York Times
It’s Not All Bad
Westerners have enjoyed unprecedented low-cost, quality goods manufactured in other countries.
Two examples of this are; 1) the Apple iPhone, which, if manufactured in the United States would have cost $2800. each, instead of the typical $650.-$950. price range. The iPhone wouldn’t have ever seen production if it hadn’t been manufactured in Asia. Over one billion have been sold since the first iPhone hit the market. And; 2) almost every computer chip in the world was manufactured in Taiwan, an industrious country with a very diligent workforce, but few natural resources. Computer chips have cost an average of $40. since Taiwan’s entry into the semi-conductor business, but if manufactured in the United States those chips would’ve cost hundreds of dollars each.
While low-cost goods are welcome in the West, people in the bottom quintiles now wish for a return to high paying employment and would gladly forego low-priced goods.
Which is exactly what the election of Donald Trump is all about. ‘Cheap goods are great, but we’d rather have jobs!’ — seems to be the main message there.
It’s difficult to blame those who harbour such resentments when 3/5ths of the population are doing less well, while only 2/5ths feel they have progressed in recent years.
Yet to blame the very free trade agreements that brought wealth to Western nations displays a lack of understanding of how globalization works vs. how free trade agreements work.
Free trade creates additional economic activity (with many virtuous cycles, which are always a good thing) while unrestricted globalization (under existing personal tax laws) rewards the top-two quintiles at the expense of the bottom-three quintiles. And it’s this fundamental misunderstanding which have people in an anti-free-trade mood — when instead, they should be protesting against global elites, unfettered globalization, and crass-and-uncaring politicians.
Had the global elites applied as much effort to ensuring that globalization worked for every economic quintile instead of the top-two quintiles exclusively, movements such as Occupy Wall Street along with the general disenchantment voiced by the public against politicians and economists wouldn’t have materialized. Ever.
When it works for everyone, there’s no complaining.
READ: In Defense of Globalization | Project Syndicate
Free Trade with a Standardized and Reciprocal Tariff Regime – Instead of Unfettered Globalization
PM Theresa May and Chancellor Philip Hammond should work to obtain a mutually-beneficial free trade agreement between all Commonwealth countries as part of a Tier 1 trade accord.
Such an agreement should ensure there are no tariffs, levies, nor other trade impediments — save for a highly standardized and reciprocal 5% tariff on all goods — except books (in any form) or those medicines that actually save lives, because principles do matter. A more educated and healthier Commonwealth are desirable outcomes. No VAT taxes or tariffs should be levied on books or life-saving medicines, ever. Anywhere on the planet, IMHO.
Why the 5% Tariff?
What the 5% tariff would do for all signatory countries is to pay for upgraded port facilities and enhanced security at ports, railways, and for cargo ships at sea.
Why the 10% Tariff?
A Tier 2 trade accord should be negotiated with nations that aren’t Commonwealth members with a standardized and reciprocal tariff of 10% — except for books and life-saving medicines which should be tariff-free and VAT-free in every case. As long as the trade partners agree to standardized and reciprocal tariffs, such tariffs won’t break WTO tariff rules. And such revenue could enhance port security, of course, but could also be used to pay for additional infrastructure programmes to put millions of workers back on the job.
Why the 25% Tariff?
Finally, a Tier 3 trading scheme could be created for those nations that won’t agree to a standardized list of tariffable items at a standardized and reciprocal rate, and won’t agree to not tariff books and life-saving medicines, and that tariff could be 25% on all imported items until the day arrives that country begins to abide by the Tier 2 trading rules.
In all three scenarios it puts the UK government firmly in the drivers’ seat in regards to imported goods and guides UK trading partners towards Tier 2, or even Tier 1 status.
The goal is to arrive at a situation whereby every nation willingly decides to join The Commonwealth in order to gain free trading status with the Commonwealth and agrees to a nominal, standardized, and reciprocal 5% tariff regime on every good except books and life-saving medicines.
It is still free trade, but with a nominal, built-in tariff designed to enhance port facilities and streamline security in all partner nations.
What to do with the revenue generated by such tariffs?
The main point is to upgrade existing port facilities, to increase security at Britain’s ports, and at reciprocal trade partner ports to ensure the security of ships at sea and the thousands of kilometres of rail lines that carry freight.
Any remaining tariff revenue could be used to soften the economic blows to those in the bottom-two quintiles who have suffered quite enough over the past 16 years.
Whether used to boost social welfare rates (good) or to boost national infrastructure spending (better) or both (best) it will be money well spent, and it would be revenue that arrived in the government hand via imported goods.
Which seems fitting, doesn’t it?
READ: Interview with Theresa May, Prime Minister of the UK, from the World Economic Forum 2017 | CNBC
China to UK rail link to revolutionize trade
by John Brian Shannon | January 4, 2017
The biggest boon to UK trade in this century has just arrived in London with astonishingly little fanfare.
China, the largest exporter on the planet, has just linked its rail system to the UK as part of its One Belt, One Road initiative to promote global trade.
“China launched its first freight service to the United Kingdom on New Year’s day, according to the China Railway Corporation.
The service runs from the Chinese city of Yiwu, in the country’s eastern Zhejiang province, to Barking in London. The journey lasts for an average of 18 days and more than 12,000 kilometers, according to a Chinese government website.
The route will “revolutionize the way freight is moved from China,” Mike White, director of its U.K.-based arm, Brunel Shipping, told CNBC via telephone.
He explained that freight transport by sea from China to the U.K. can take twice the time of the new rail link. Also, it offers the potential for “huge savings” on existing air routes.” — Justina Crabtree MSNBC
For China, the One Belt, One Road initiative will eventually surpass even Chairman Mao’s Great Leap Forward where 600 million people were lifted out of abject poverty in a herculean effort that lasted 40 years. China’s trade with Europe and the rest of Asia is about to leap forward by one order of magnitude, and every economy the rail line passes through will advance accordingly because of it.
UK – China trade will be revolutionized by China’s One Belt and One Road initiative first unveiled by Chinese leader Xi Jinping in 2013.
For the UK, there’s no excuse good enough (no, not even Brexit!) to miss the opportunity to become a major player in this global rail link. The Prime Minister should drop everything and phone President Xi Jinping to congratulate him on this vision that is EurAsia’s newest and most hope-filled reality.
UK government should purchase advertising rights TODAY on 20% of those rolling billboards
Theresa May should very politely but assertively ask for the rights to purchase advertising on at least 20% of the railcars that travel that rail line in the interests of promoting British tourism, British universities, British products, and to advertise the great development work that The Commonwealth does around the globe.
Let’s get the website URL’s painted on those railcars this month!
We can worry about adding fancy graphics, later.
And when people visit those sites let’s ensure that every language is available on the website, especially the languages that are spoken in the countries those railcars pass through. (Otherwise, what’s the point of advertising?)
Getting the UK Brand out there
Such railcars can be travelling billboards for the UK, with the message painted directly on the sides of rail tankers, boxcars, and other types of railcars. These travelling billboards will be seen by many millions of people every day of the year as they pass through cities, towns, and rural countrysides in 8 countries.
Instead of letting government departments and UK businesses approach China’s Yiwu Timex Industrial Investment Co. (the owner-operators of the rail service) in a piecemeal approach, this is the time for LEADERSHIP by a great Prime Minister!
“President Xi, I’ll take 20% of the boxcar advertising that travel along that route. Alright with you? Wonderful, here’s the money. I have the graphics specs for you now. We’d also like an option for a further 20% of your China-to-UK railcar advert space for our Commonwealth partners. Back to you in a week on that.”
THAT’S how you get things done! THAT’S how you Build a Better Britain!
China – UK trade. Instead of “Exporting is Great” it could just as easily read “Aston Martin cars are Great” or “UK Tourism is Great” or “British Universities are Great” along with the relevant website URL.
Here’s another example of a splashy graphic that could be painted on the sides of China-bound railcars that depart from the UK. Of course, the text on the railcars should be written in every language spoken along the rail route.
UK Tourism – Heritage is Great! And so is advertising on the side of China-bound railcars.
Even the railcar advertising from earlier generations was effective. The following photo shows a railcar that hauled wheat and legumes with 1970’s-era Canadian government advertising painted onto the side of the railcar.
Britain could purchase advertising space to promote British industry and tourism on the side of China to UK railcars. — Image courtesy of Bill Grandin
It’s great to be diplomatic, and it’s great to have G20 meetings — but it’s opportunities like this that can result in virtuous cycles (economic multipliers) that drive an economy forward.
It’s the sort of thing that’s so important you must push yourself into the lineup, instead of being a wallflower and letting every other country get the prime advertising space, first. And we know that’s not the way politicians usually proceed, but as Winston Churchill used to say, “If you can’t get something done yourself, hire the best to get it done for you.”
With the greatest respect Ms. Prime Minister, you don’t need permission from the EU, you don’t need permission from America, you don’t need permission from British MP’s, and you don’t need permission from British business; This must be your top priority everyday until January 20, 2017 when U.S. President-elect Donald Trump is sworn into office.
Letter to Britain 